our vision - sohar international · 2019. 6. 11. · our management, our staff, our customers, our...

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Our VisionOur vision is to be a one-stop financial super-mall offering boutique products and services across various segments, each with a unique set of propositions.

Our Valuesl Integrity

l Customer Focus

l Team Work

l Passion

l Respect for Individual

l Speed

Upward and forward. A clear vision and a confident stride is what we plan to use to take us ahead; and there are no finishing lines

Our Vision & Values

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As a bank, we reiterate excellence. Our spotlight remains on excellence. We strive for excellence in our business, excellence in our products and services and excellence in everything we do for the customer. Excellence underscores our efforts to become one of Oman’s leading banks.

We continue with our determination to create exceptional banking solutions, products and services. Our determination is based on understanding what our customer needs. The solutions we develop, the products we introduce and the services we provide revolve round the customer. Everything we do is also based on earning the trust of our customers.

Our customers repose their trust in us. We value that trust and will safeguard and secure that trust in everything we do. Our vision and our convictions will work together to provide the best options for our customers. Wisdom and prudence will govern our decisions even as we strive to grow, to improve and deliver.

The tenets of accountability, fairness, responsibility and transparency are the pillars on which we rest our business. These are the tenets that guide us in our principal relationships with our Board of Directors, our management, our staff, our customers, our shareholders, our regulators, our suppliers and the wider community in which we operate. These are also the tenets that guide us in our business efficiency.

We are an Omani bank. We are conscious of the role we need to play in the economy of the country. We ally with and espouse national objectives and extend our support and competence to work for these objectives.

Board of Directors’ Report 2

Board of Directors 6

Auditor’s report on Corporate Governance 8

Corporate Governance Report 9

Management Team 18

Management Discussion & Analysis Report 20

Auditor’s Report on Statutory Disclosures Under Basel II 31

Statutory Disclosures Under Basel II 32

Independent Auditor’s Report on Financial Statements 45

Balance Sheet 46

Income Statement 47

Statement of Changes in Equity 48

Cash Flow Statement 49

Notes to the Financial Statements 50

Bank Sohar Branch Network, Contact details and ATM location 94

The Future is Excellence Table of Contents

ANNUAL REPORT

2008

32

It is an honour for me to present to you the results

achieved by the Bank during its first full year of opera-

tions. Since opening officially for business in May 2007,

the Bank has consolidated its experiences of the early

months and has made significant strides in the different

areas of its activity.

ECONOMY

Clear strategy and determined focus have enabled

Oman to achieve enormous progress through every one

of the last few years. Economic diversification has led

to sustainable growth, created increased employment

avenues, opened up new opportunities and transformed

the entire country. With much work still to be done,

the country is now watching the unpredictable devel-

opments that have enveloped entire nations and whole

economies. The liquidity crisis in the global financial mar-

kets has undermined business and consumer confidence

all around the world.

The global crisis has had indirect effects on the liquidity

situation in many countries. Oman has also experienced

these effects but is to a considerable extent more fortu-

nate. During the year 2008, there was marked increase in

oil production and oil revenues. The nominal Gross Do-

mestic Product growth as at June 2008 was 46.4 percent

while the total trade by the Sultanate grew 54 percent

between June 2007 and June 2008. The trade surplus

also grew by 48 percent in the same period.

At the end of November 2008, the total assets of com-

mercial banks in the country increased by 39 percent

to reach RO 13.7 billion as compared to its level in the

previous year. The total credit expanded by 50.9 percent

indicating the availability of financing to meet all non-oil

economic activities to sustain growth of the Gross Do-

mestic Product. At the end of November 2008, the ag-

gregate deposits of commercial banks increased by 38.7

percent to RO 8.6 billion. The core capital increased by

30 percent to RO 1.49 billion more than meeting the

Basel II capital adequacy requirements. Provisional figures

for the net profits of commercial banks in the country for

the year 2008 show an increase over the previous year. It

is from this position that the country is now watching the

unpredictable crisis in the global financial markets that

has undermined business and consumer confidence.

FINANCIAL OVERVIEW 2008

The Bank achieved an Operating profit of OMR 5.15 Mil-

lion for the year ended 31st December’08 which is 80%

higher than the operating profit last year. The net loss for

the current year stood at OMR 2.26 million compared

to a net loss of RO 2.48 million last year. The increase in

operating profits has been achieved due to strong contri-

butions being made by all segments of our business. As a

result of the increase in the loan portfolio during the year

the total charge of non-specific provisions amounted to

OMR 5.16 Million compared to OMR 4.40 Million last

year. As per the Central Bank of Oman guideline dimi-

nution in market value of investments more than 35%

has been provided as a ‘Provision for Impairment in In-

vestments’ and an amount of RO 2.39 million has been

provided in the Income Statement.

During the year, the Bank built a total customer credit

exposure of OMR 644 million and customer deposits

of OMR 638 million servicing a total of 42,571 cus-

tomers. The savings deposits have built up to OMR 74

million. The Bank was able to increase its market share

consistently during the year and has closed the year with

6.64 percent of private sector credit and 6.77 percent of

private sector deposits as computed with reference to

industry data of November’ 2008.

Bank Sohar had issued 100 million shares of RO 1/- each

to the public in December 2006. An amount of RO 0.500

was payable on application and the balance RO 0.500

per share was to be paid by the shareholders within a

period not exceeding three years from the date of in-

corporation. The call for the balance capital was made in

May 2008 and the paid up capital of the bank increased

to RO 100 million. The nominal value of the Bank’s share

was split from RO 1 per share to 100 baiza per share.

FUTURE PLANS

The new economic realities have compelled both gov-

ernments and businesses all over the world to re-exam-

ine their positions, adjust their assumptions and then with

an abundance of wisdom respond to an environment

where uncertainty is likely to be a constant for some

time.

The Government of Oman in formulating its plans has

taken the approach that investing in infrastructure, in

skills, and in innovation will be the best response to move

through an uncertain phase. It has taken into account

how the global circumstances will affect capital markets,

labour markets and the country’s growth. While continu-

ing the focus on diversifying growth, the Government

has announced mega infrastructure projects totaling RO

18.5 billion over the next five years. The State General

Budget for 2009 has also outlined the new projects that

will be implemented in 2009. New airports, a recycling

plant for the dry dock, a gas-fired power plant, an iron

pelletising plant, a potable water system, steam sub-sta-

tion etc. are some of the projects that are already in the

pipeline or being planned. The government has consti-

tuted an investment fund to boost investor confidence

in the Muscat Securities Market and the apex bank has

taken measures to improve liquidity in the market. These

measures are certain to provide the necessary impetus

to grow the economy.

The year ahead will have its share of variables and uncer-

tainties. New types of businesses that are being planned

or that are now on stream will require an addition to the

knowledge base to allow for financial intermediation and

participation as knowledge partners. The year ahead is

also certain to provide its share of opportunities for new

learning and new ways of doing business.

While the global economy goes through the correction

phase, there is likely to be an increase in competitiveness

and an opportunity for banks with focus on excellence

and service to get an improved share of business. The

banking sector in Oman is sure to emerge healthier and

stronger and in the long run contribute more to future

progress.

The Bank’s approach to business in the coming year will

be to consolidate the gains it has made in the business

since inception and adopt a balanced and comprehensive

approach to future growth. The strategies of the Bank

will include efforts to identify those segments of the

business that will remain resilient and will provide a

platform for sustained growth. The Bank will continue to

align its future plans with the national goals and avail of

all the opportunities that arise during the year. The Bank

will also continue to play a pivotal role in partnering all

sectors of the market.

COMMUNITY INVOLVEMENT

The Bank’s involvement in and investments into the

community began soon after the Bank opened for

business. This involvement has continued in the present

year as well specially in the areas of community health,

sports, education, employment and business. The Bank

lent wholehearted support to national programmes

by sponsoring the Muscat Festival for the first time and

being once again present at the Salalah Festival. The

Bank’s involvement at each of these events has provided

opportunities to inform the community about the Bank’s

value base and at the same time showcase the Bank’s

products and services.

CORPORATE GOVERNANCE

In the Bank’s first Annual Report, we provided the

assurance that the Bank will adhere to stringent

corporate governance measures where disclosure and

accountability have paramount importance. We have

honoured that assurance during the current year. A

detailed report on the implementation of corporate

governance appears as a part of this Annual Report.

ON RECORD

In November 2008 and consequent to his promotion,

Sheikh Hilal bin Hamoud bin Hamad Al Mamary,

the first Chairman of the Board of Directors of Bank

Sohar resigned from his post. The Board appointed

Board of Directors’ Report Board of Directors’ Report

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Dr. Mohamed Abdul Aziz Kalmoor, the Deputy Chairman,

as the Acting Chairman of the Board of Directors. The

Board of Directors record its appreciation to Sheikh

Hilal bin Hamoud bin Hamad Al Mamary, for his

pioneering leadership and contribution to the Bank from

its inception and for the period he was with the Bank.

We acknowledge that our progress during the year has

been made possible by the spirit of enterprise ensured

by the outlook and vision of His Majesty Sultan Qaboos

bin Said. His presence at the helm of affairs has and is

guiding the country through one of the most difficult

periods in its economic history.

Some of the regulatory measures that may have been

irksome in the course of doing business are possibly

the very same that have afforded protection to Oman’s

banking system. We appreciate the work of the Central

Bank of Oman, the Capital Markets Authority and the

Muscat Securities Market all of whom join to provide an

excellent environment for businesses to operate.

During the year, our management team and every

one of the members of the staff have contributed in

abundant measure to the goals set out for the Bank. The

achievements of the Bank would not have been possible

but for their dedication and cooperation. We hope they

will continue to be with the Bank and serve the Bank with

the same spirit. In its second year, the Bank has reached

out to more customers and they have responded with

faith and trust. We hope they will stay with us as the Bank

grows and continues to be a part of their lives.

Abdullah Humaid Said Al Mamary

Chairman

Our finest growth opportunities are those that we make ourselves with inputs of courage, perception, integrity and excellence - always one step at a time.

Board of Directors’ Report

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Board of Directors Board of Directors

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5

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Mr. Abdullah Humaid Said Al Mamary – Chairman

Mr. Hussain Yousuf Dawood Al Shalwani – Deputy Chairman

Mr. Salim Mohamed Masoud Al Mashaiky – Member

Dr. Hamed Salim Rashid Al Rawahi – Member

Mr. Khalid Talib Said Al Hasani – Member

Mr. Tahir Salim Abdullah Al Amry – Member

8 9

The framework of Bank Sohar’s Corporate Governance Philosophy has been developed within the directives and guidelines of the Central Bank of Oman (CBO), the Cap-ital Market Authority (CMA) and the Commercial Com-panies Law of Oman (CCL). The four universal values synonymous with corporate governance – accountability, fairness, responsibility and transparency are an integral part of it.

Corporate governance is the collection of processes, customs, policies, laws and practices affecting the man-ner in which the organization – namely Bank Sohar is directed, administered or controlled. Corporate gover-nance also covers the relationships between the many individuals involved in the Bank and the aims and objec-tives for which the Bank is governed. The principal rela-tionships at Bank Sohar are between the shareholders of the Bank, the management and the Board of Directors. Other relationships include the customers, employees of the Bank, regulators, suppliers, the environment and the community in which the Bank exists. An additional aspect of governance is that of an economic efficiency view, through which the governance system of the Bank also aims to optimize economic results, thereby placing emphasis on the shareholder’s welfare.

The basic framework of the bank’s corporate governance requires that the Board of Directors and managers shall:

Strive continuously to achieve higher levels of corpo-rate governance

Promote transparency, accountability, responsiveness and social responsibility

Conduct its affairs with its stakeholders, customers, employees, investors, vendors, government and the society at large in all fairness and in an open manner.

Create an image of the Bank as a legally and ethically compliant entity and

Ensure compliance with regulations and its reporting

2. Board of directorsThe Bank’s Board of Directors ensures that the Bank conducts itself in accordance with its core values and develops them further on a continuous and sustainable basis. The Board is broad-based, consists of professionals from various fields and professions and gives representa-tion to the stakeholders, administrators and independent directors in the process of decision making. The predom-inance of independent directors has enabled the board to have meaningful discussions and take an unbiased and qualitative view on matters placed before it. There is a clear segregation between the ownership of the Bank and the management.

2.1 Composition & Classification of the Board

There are seven directors on the Board of Bank Sohar and all of them are non-executive directors.

Table 1: Composition & Classification of the Board

Name of Director Category Represents Remarks

Sheikh Hilal Hamood Al Mamary, Chairman

Non-Executive IndependentResigned w.e.f. November 11, 2008

Dr. Mohamed Abdulaziz Kalmoor, Deputy Chairman

Non-Executive IndependentActing Chairman w.e.f. November 11, 2008

Mr. Abdullah Humaid Said Al Mamary Non-Executive Independent

Dr. Hamed Salim Al Rawahi Non-Executive Independent

Mr. Hussain Yousuf Dawood Al Shalwani Non-ExecutiveAl Ghadeer Al Arabiyah LLC

Mr. Tahir Salim Al Amry Non-Executive Independent

Mr. Salim Mohammed Al Mashaiky Non-Executive Independent

Mr. Khalid Al Hasani Non-Executive IndependentDirector w.e.f. November 11, 2008

Corporate Governance Report

10 11

2.2 Profile of Directors

Sheikh Hilal Hamood Al MamaryChairman from inception to 11 November 2008 MBA from University of Lincolnshire and Humberside, UK. Bachelor in Behaviour of Human Sciences from University of Southwester, Louisiana, USA. Member, Board of Directors of Royal Office Pension Fund and Chairman, Board of Trustees of Al Sahwa Schools.

Dr. Mohamed Abdulaziz KalmoorActing Chairman since 11 November 2008 Ph.D in Economics from University of Colorado. Bachelor in Economics from University of Essex. Chief Executive Officer, Oman Investment and Finance Company. Executive Vice President of the Central Bank of Oman until year 2000. Chairman, Board Credit & Risk Committee. Member, Board Executive Committee of the bank.

Mr. Abdullah Humaid Said Al MamaryDirectorMBA from University of Lincolnshire and Humberside, UK, Bachelor’s Degree in Business Administration from the International University, London. Director, SSF Pension Fund. Vice Chairman, Hotel Management Company International, Member, Board of Middle East College of Information Technology. Chairman, Board Executive Committee, Member, Board Credit & Risk Committee and Human Resources Committee of the bank.

Dr. Hamed Salim Al RawahiDirector

Ph.D. and M.Phil. from Cranfield University, U.K. and B. Sc. from University of Salford, UK, Chartered Engineer (C.Eng) and Chartered IT Professional (CITP), both from UK, Board Member of the Information Technology Authority (ITA) and the Chairman of various other committees within the ITA, Member of the Board Omani-Qatari Telecommunications Company. Chairman, IT Committee. Member, Board Executive Committee, Audit Committee and Human Resources Committee of the bank.

Mr. Hussain Yousuf Dawood Al ShalwaniDirector

Bachelor’s Degree from Beirut University. Member, Board Credit & Risk Committee, IT Committee and Audit Committee of the bank.

Mr. Taher Salim Al AmryDirector

Bachelor of Finance and Accounting from Salford University, UK. Head of the Office of H.E. The Minister of National Economy, Supervisor of the Ministry of Finance. Director, Board of Qalhat LNG S.A.O.C and Oman LNG LLC. Chairman, Board Audit Committee. Member, Board Credit & Risk Committee and IT Committee of the bank.

Mr. Salem Mohammed Al MashaikhyDirector

Bachelor’s Degree in Mathematics. Currently with Royal Court Affairs. Chairman, Board Human Resources Committee. Member, Board Audit Committee of the bank.

Mr. Khalid Talib Said Al HasaniDirector since 11 November 2008

MSc in Audit Management and Consultancy and Bachelors in Banking. Working with the Royal Office since 1996 with rich experience in the fields of Finance, Management, Audit, Investment, Human Resource and Total Quality Management. 2.3 Board of Directors – Executive Powers

Bank Sohar’s Board of Directors:

Is vested with the powers of general superintendence, direction and management of the affairs and business of the Bank.

Has the ultimate responsibility for the overall management of the Bank

Guides the Bank to achieve its objectives in a prudent and efficient manner.

Is primarily responsible for ensuring that all financial transactions are legal and that all disclosures are made as per regulations.

Lays down a comprehensive code of conduct for all Board Members and Senior Management of the Bank, to be followed under all circumstances.

Approves the delegation of power to the executive management as well as nominee members of the sub-committees and specify their roles, responsibilities and power.

Authorises the management to implement the strategy for the Bank that is designed to deliver increasing value to the shareholders.

Develops strategies for managing risks associated with the business and for meeting challenges posed by competitors.

Develops vision to anticipate crisis and to act proactively when necessary.

Ensures that information flows upward and that authority flows downward and thus the Bank is under their control, direction and superintendence.

During the year under review, the Board has:

Reviewed and approved the Bank’s financial objec-tive, plans and actions

Reviewed the Bank’s performance

Evaluated whether the business is properly managed according to the Bank’s objectives

Ensured compliance with laws and regulations through proper internal control systems

The Board of Directors has affirmed Bank Sohar’s Code of Conduct, including the Code of Conduct for the Senior Management of the Bank.

The Board has approved the three quarterly reports and the annual financial statements and report to the shareholders on the annual report about the ongoing concern status of the Bank with supporting assumptions and qualifications as necessary.

The Board has taken steps to comply with rules and regulations and reviewed compliance reports, prepared by the Bank’s management of all applicable provisions of the law.

Bank Sohar’s Board of Directors has exercised all such powers and performed all such acts as the Board is authorized to exercise and do.

2.4 Meetings and Remuneration of the Board

The Board of Directors meet regularly, monitors the executive management, and exercises necessary control over the Bank’s functioning. The Board conducts its business in formal meetings. In Board meetings, the “majority” is computed as the absolute majority of the directors present in person or proxy, whether or not they participate in the voting process. A sitting fee is paid to the Directors for attending the Board or its sub-committee meetings. The fee is within the limits stipulated by the Commercial Companies Law and the directives of the Capital Markets Authority.

Table 2: 11 Board Meetings held in 2008 and dates on which they were held

Meeting Dates of the Board of Directors in 2008

No Date No Date

1 January 13, 2008 7 August 18, 2008

2 January 28, 2008 8 October 12, 2008

3 March 25, 2008 9 October 20, 2008

4 April 26, 2008 10 November 11,2008

5 May 24, 2008 11 November 23,2008

6 July 28, 2008

Table:3 Attendance & Remuneration – Board of Directors

Name of Director

No. of Board

Meetings Attended

No. of Board Sub-Committees Membership

No. of Sub-

committeeMeetings Attended

Total Sitting Fees (Board

& Sub-committee)

RO’000

TravelExpensesRO’000

TotalRO’000

Sheikh Hilal Al Mamary, Chairman

9 - - 4.5 0.397 4.897

Dr. Mohamed Kalmoor, Deputy Chairman

11 3 18 10 - 10

Mr. Abdullah Al Mamary 8 3 20 10 0.549 10.549

Dr. Hamed Al Rawahi 8 4 16 10 - 10

Mr. Hussain Al Shalwani 11 3 22 10 2.746 12.746

Mr. Tahir Al Amry 10 3 18 10 - 10

Mr. Salim Al Mashaiky 10 2 12 9.8 - 9.8

Mr. Khalid Al Hasani 1 - - 0.5 - 0.5

64.8 3.692 68.492

Corporate Governance ReportCorporate Governance Report

12 13

2.5 Committees of the Board The Board of Directors have constituted various committees for specific purposes with clearly defined terms of reference and responsibilities to ensure focused and specialized attention to specific issues related to the Bank’s governance. The various sub-committees of the Board together with the Internal Audit and Compliance department form an important tool in the process of corporate governance.

2.5a Executive Committee

Table: 4 Executive Committee

Name of MembersNo. of

MeetingsAttended

Mr. Abdullah Al MamaryChairman

5

Dr. Mohamed Kalmoor 4

Dr. Hamed Al Rawahi 4

Total no of meetings held during the year : 5

The main objective of the Board Executive Committee (EXCOM) is to ensure implementation of the Business Strategy and Policies and Procedures of the Bank. The committee ensures implementation of appropriate codes of business conduct to nurture ethical behavior to protect the bank’s integrity and that of its shareholders. The bank’s Head of Compliance officer reports to the Executive Committee and his role is to ensure that the Bank complies with all the rules and regulations as applicable under the regulatory framework in Sultanate of Oman.

2.5b Audit Committee

Table: 5 Audit Committee

Name of DirectorNo. of

Meetings Attended

Mr. Tahir Al AmryChairman

7

Mr. Hussain Al Shalwani 9

Mr. Salim Al Mashaiky 8


Total no. of meetings held during the year : 9

The main functions of Audit Committee are to assess and review the financial reporting system of the Bank to ensure that the financial statements are correct, sufficient and credible. The committee reviews with the Management the quarterly / annual financial statements before their submission to the Board for adoption. The Committee also reviews the adequacy of regulatory compliance, regulatory reporting, internal control systems, structure of internal audit department, its staffing and holds discussions with the internal auditors / external auditors on significant finding and the control environment.

The Head of Internal Audit reports to the Audit Committee and his role is to ensure the adequacy and efficacy of the internal control systems.

2.5c Credit & Risk Committee

Table 6: Credit & Risk Committee


Meetings Attended

Dr. Mohamed KalmoorChairman

12

Mr. Abdullah Al Mamary 11


Mr. Tahir S Al Amry 10

Total no. of meetings held during the year :12

The main objective of the Board Credit Committee is to ensure that the Bank has in place Strategy, Policies, Procedures and a framework to manage credit product portfolio and related risk as per the directives of the board and to ensure its directives are implemented to optimize the quality of assets and return on its deployment.

The committee has comprehensive terms of reference that, inter-alia includes, policies and procedures to manage the bank’s credit risk portfolio, strategy and framework to maintain the quality of credit portfolio and optimize return on assets, and ensure systems are in place to measure and monitor the performance of credit portfolio, risk anomalies and exceptions to standards and guidelines.

2.5d Human Resources Committee

Table: 7 Human Resources Committee


meetingsAttended

Mr. Salim Al MashaikyChairman

4


Mr. Abdullah Al Mamary 4

Dr. Mohamed Kalmoor 2


The main function of the committee is to focus on strategic areas such as having the right CEO and Senior Management team, a compensation and benefits scheme to attract and retain talented and committed staff, and inculcate a customer centric culture with integrity and high ethical standards amongst the staff.

2.5e Information Technology Committee

Table: 8 Information Technology Committee


Meetings Attended

Dr. Hamed Al RawahiChairman

3


Mr. Tahir Al Amry 1


The main function of the committee is to focus on technology strategy to deliver value added services to clients in a secure and controlled environment that enables the bank to gain a competitive edge and keeping abreast of technological developments that have the potential to positively impact service delivery and customer experience.

3. Management Team

The management of the Bank has been entrusted by the Board to a Management Team. The top management team has over 200 years of banking expertise between them. The top management keeps the Board of Directors informed on all issues concerning the operations of the Bank and takes directions from the Board on matters that concern and affect the business of the Bank and the objectives it should pursue. In the interest of good governance, the top management places all the key information before the Board, where it forms part of the agenda papers.

3.1 Profile Senior Management Team

Nani B. Javeri is the first CEO of Bank Sohar. Prior to joining Bank Sohar, Javeri was the CEO of Birla Sun Life Insurance in India for 5 years. Nani B. Javeri has spent 32 years with ANZ Grindlays Bank. Javeri has also worked with Oman International Bank, Muscat as General Manager for 2 years. Nani Javeri holds a Bachelors Degree in Economics.

H.V. Sheshadri heads the Risk Management Division at Bank Sohar. Sheshadri was Managing Director and CEO of the Development Credit Bank, India, Country Manager of Mashreq Bank, India. He has 16 years with ANZ Grindlays Bank. Sheshadri is an MBA from the Asian Institute of Management, Manila.

Khalfan Rashid Al Tal’ey heads the Retail Banking Division at Bank Sohar. Khalfan is a well known banker in Oman with over 30 years of experience. He has worked with British Bank of Middle East and Oman International Bank. Khalfan holds a Diploma in Executive Management from the University of Virginia.

Mangala Gamage is the Chief Financial Officer joined the bank in August’ 2008 with more than 18 years of banking experience. Prior to joining Bank Sohar he was the Financial Controller of HSBC Bank, Oman. Mangala is a Chartered Management Accountant from the Chartered Institute of Management Accountants-UK.

Shantanu Ghosh heads the Operations, Information Technology and e-Channels divisions at Bank Sohar. Shantanu has worked for over 19 years in various senior capacities with ANZ Grindlays Bank, India and Standard Chartered Bank, India. He was Country head of Retail Banking in ING Vysya Bank, India. Shantanu holds a Masters Degree in Economics and PG Diploma in International Trade from the Indian Institute of Foreign Trade.

Munira Macki heads the Human Resources and Training Division at Bank Sohar. She was the Head of Corporate Affairs at Alliance Housing Bank. Prior to this she was Deputy Director – Educational Activities at Ministry of Education. Munira holds a Bachelors degree in Philosophy & Psychology from Beirut Arab University Lebanon.


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R Narasimhan heads the Wholesale Banking Division after joining the bank in May’2008. He was the Head of Mid Corporate Business , IDBI Bank, India. He was also the Head of Corporate Banking in IDBI Bank, India. Narasimhan has more than 29 years experience in Banking in the supervisory cadre and holds a Master’s Degree in Science (Physics) from Madras University and PG Diploma in Banking from Maharaja Sayajirao University, Baroda. He is also a Certified Associate of Indian Institute of Bankers.

Peter Byrne joined the bank in October’2008 as the Head of Internal Audit. Prior to joining Bank Sohar he was the Head of Group Internal Audit, Bank of Scotland (Ireland). Peter has more than 20 years experience in Audit and Risk Management. He holds a Diploma in Business Studies and is an Associate Member of the Institute of Internal Auditors.

Mr. Raman Kaicker CFO left the services of the bank w.e.f. April 30, 2008.

3.2 Remuneration of Senior Managers for the year 2008

The remuneration, including all sums obtained by the top -8- senior manager as wages, fees, or remuneration and the sums paid as travel and transport expenses inside the Sultanate of Oman or abroad, during the year under review was RO 759,977 out of which remuneration was RO 738,203 and travel expenses was RO 21,774.

4. Procedures for Standing as Candidate for the Board of Directors

The Board of Directors are elected by the shareholders of the Bank at the Annual General Meeting. The term of office of the Board of Directors is for a maximum period of three years, subject to re-election.

The election process is through direct secret ballot by the shareholders of the bank, where each shareholder shall have a number of votes equal to the number of shares held by them. Every shareholder shall have the right to vote in entirety to one candidate or divide the shares amongst the nominees, subject to the stipulation that the total votes cast shall not exceed the number of shares owned by such shareholders.

The entire process of nomination and election of the Board of Directors, including the eligibility criteria, is governed by Articles 19 to 21 of the bank’s Articles of Association, as well as in compliance with the relevant provisions of the Commercial Companies Law of the

Sultanate of Oman, the Code of Corporate Governance for General Omani Joint Stock Companies (S.A.O.G.) issued by the Capital Market Authority and the relevant guidelines issued by the Central Bank of Oman.

5. Statement on compliance

The Board of Directors of the Bank have been appointed in line with the guidelines of the Commercial Companies Law of Oman (1974) and in accordance with the regulations of the Central Bank of Oman. The Board of Directors has complied with all the guidelines for the appointment of directors prescribed by the Companies Law of Oman (1974) and the Central Bank of Oman’s regulations with reference to eligibility.

The Board of Directors of the Bank consists of a minimum of 7 directors from among shareholders and non-shareholders. The Board of Directors of the bank affirms that no member of the Board:

is an employee of Bank Sohar or an employee of any other bank in Oman.

is on the Board of any other Bank registered in Oman.

sits on the Board of more than four joint stock com-panies registered in Oman.

is Chairman of more than two joint stock companies registered in Oman.

During the year under review, Sheikh Hilal Al Maamry, a member on the Board and the Chairman resigned from the board consequent to his promotion. Mr. Khalid Al Hasani was nominated as a Director by the Board of Directors to fill the vacant position. The board also appointed Dr Mohamed Abdulaziz Kalmoor, the Deputy Chairman as Acting Chairman.

During the year under report, Bank Sohar has complied with the directives of the Central Bank of Oman, Rules and Guidelines on Disclosure by Issuer of Securities and Insider Trading, the Code of Corporate Governance of the Capital Markets Authority for listed companies and the Guidelines of the Commercial Companies Law.

The Board is not aware of any non-compliance with the law, regulation, or any other requirement of a statutory authority, nor has it been subject to penalty for any such non-compliance.

6. Channels of contact with shareholders and investors

Bank Sohar has endeavored to establish meaningful relations with its shareholders and investors. The

Bank is committed to ensure timely disclosure and communication of all material information to the shareholders and the market regulators. The bank has provided investor related information in the quarterly reports and the Annual Report as per the statutory guidelines and the terms of the Bank’s listing agreement.

The Annual Report includes interalia, the report of the Board of Directors, corporate governance report, management discussion and analysis report and the audited financial results. The management has taken the responsibility for the preparation, integrity and fair presentation of the financial statements and other information in the Annual Report of the Bank. The Annual Report will be sent to all shareholders of the Bank in line with the rules for the same as stipulated by the Capital Markets Authority.

Additionally the bank has posted the financial statements

on its website www.banksohar.net.6.1 Bank Sohar Shares - Market Price

During the year under review, at an Extra Ordinary General Meeting held on April 26, 2008, the shareholders of the bank decided to call up the remaining 50% of the unpaid capital and split the shares of the bank from a nominal RO 1/- to a nominal 100 Baizas per share, resulting in a tenfold increase in the number of shares issued from One Billion ordinary shares of the nominal value of RO 1/- (Rials Omani One each) each to One Billion ordinary shares of the nominal value of 100 Baizas (One Hundred Baizas each) each. This change was effected in May 2008.

The following table needs to be read in the context of the division of the nominal value of the ordinary shares,

Table:10 Bank Sohar Shares - Market Price

Month 2008 Bank Sohar share price Rial Omani MSM Banks &

Investment Index ClosingHigh Low Closing

January 1.755 1.500 1.543 12,223.200

February 1.660 1.500 1.602 14,003.410

March 1.649 1.410 1.457 14,071.180

April 1.980 0.190 0.195 15,427.530

May 0.268 0.177 0.242 15,325.390

June 0.255 0.240 0.244 14,481.230

July 0.248 0.230 0.239 13,371.070

August 0.251 0.220 0.242 12,131.380

September 0.243 0.201 0.219 10,867.730

October 0.220 0.156 0.168 7,675.230

November 0.180 0.138 0.149 7,470.500

December 0.153 0.108 0.119 6,620.920


16 17

as described above.6.2 Distribution of share ownership

Bank Sohar is incorporated with a capital of RO 100 million and a paid up capital of RO 50 million. Major shareholders of Bank Sohar comprise a team of founders who own 60% of the share holding. The shareholders holding more than 5% is given in the table.

Name of the Shareholder Percent of shareholding

Al Ghadeer Al Arabiyah LLC 16.00%

The Royal Court Affairs 14.57%

Oman Investment Fund 6.09%

ISS pension Funds 5.36%

7. Statutory Accounts

Bank Sohar has adopted the International Financial Report Standards (“IFRS”) in the preparation of its accounts and financial statements.

8. Auditor’s Profile

KPMG Oman was appointed as the external auditors of the Bank for the financial year ending 31 December 2008 after an elaborate assessment process. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. They operate in 148 countries and have more than 113,000 professionals working in member firms around the world. Their offices in Oman have a staff complement in excess of 100 employees.

During the year 2008, RO 31,735 was charged by external auditors against the services rendered by them to the organization (RO 24,000 for audit and balance RO 7,735 for certifications, review, translations and tax filings).

9. Conclusion

The Board of Directors acknowledge that the preparation of the Annual Report of the Bank together with the Management Discussion and Analysis Report, the Corporate Governance Report and the audited Balance Sheet has been done with their full knowledge and in line with the standards for accounting and the statutory rules governing disclosure by the Capital Markets Authority and the Central Bank of Oman.

The Board of Directors also acknowledge that there is no material information and material things that will in any way affect the continuation of the business of the

Bank in the coming financial year.10. Other Important Aspects

Subsequent to the year end there have been significant changes to the Board of Directors and the Executive Management, as summarized below:

Resignation - CEO

Mr. Nani Javeri, the Chief Executive Officer (CEO) has resigned from the services of the bank for personal reasons. The Board of Directors have accepted his resignation and his last working day shall be March 31st 2009.

Resignation - Acting Chairman of the Board of Directors

Dr. Mohamed Abdulaziz Kalmoor, the Acting Chairman of the Board of Directors has resigned from the Board of the bank with effect from 3rd January 2009.

Appointment of New CEO

The Board of Directors appointed Dr. Mohamed Abdulaziz Kalmoor as the Chief Executive Officer (CEO), consequent upon the resignation of the incumbent CEO. The appointment will take effect from 4th of February 2009.

Appointment of Chairman and Deputy

Chairman of the Board of Directors

Consequent upon the resignation of Dr. Mohamed A Kalmoor, Acting Chairman, from the Board of Directors of Bank Sohar, members of the Board have appointed Mr. Abdullah Al Maamary as the Chairman and Mr. Hussein Al Shalwani as the Deputy Chairman of the Board with effect from 3rd January 2009.

People repose their trust in us. It is our privilege to safeguard and secure that trust.

Corporate Governance Report

18 19

Management TeamManagement Team

1

6 7 8 54

32

1

2

3

4

5

6

7

8

Dr. Mohamed Abdulaziz Kalmoor - CEO

Munira Abdulnabi Macki - DGM - HR & Training

R Narasimhan - DGM - Wholesale Banking

Peter Byrne - DGM & Head of Internal Audit.

Mangala Gamage - DGM - Chief Financial Officer

Shantanu Ghosh - DGM - Operations & Technology and Electronic Channels

Khalfan Rashid Al Tal’ey - DGM - Retail Banking

H. V. Sheshadri - Senior DGM - Risk

20 21

This report presents a detailed analysis of the business environment and performance of Bank Sohar during the Year 2008. It includes an outlook for the coming year with observations on opportunities, threats, risks and concerns for the business.

The Year 2008 has been Bank Sohar’s first complete year in business. After the formalities of the Initial Public Issue and incorporation, Bank Sohar commenced business in May 2007. The momentum created in the inaugural year was carried into the second, consolidated and built upon substantially. During the second year, Bank Sohar advanced its objective to become the ‘most preferred’ local international bank in Oman.

In its second year in business, the Bank continued to align its activities with national objectives and while doing so played a significant role in contributing to the goals of the Omani economy. The Bank focused on the new and emerging business sectors with potential for growth and on sectors that have been traditionally underserved by the banking sector. The operations of the Bank covered the entire range of retail, corporate and investment banking services with focus on the key growth segments. To ensure the success of these operations, the Bank has built on its competence and expertise to deliver superior products with the highest standards of customer service. The Bank’s distribution plans focused on offering an extensive network to deliver reliable and high quality products with strong emphasis on service standards and product offerings.

1. Business EnvironmentThe Year 2008, was marked by significant progress in economic diversification, sustained surpluses in the fiscal and balance of payments positions, low and declining levels of public debt and comfortable levels of foreign exchange reserves. In the previous four consecutive years as well, Oman has experienced robust economic growth. Average nominal growth in Gross Domestic Product during the period 2004 – 2007 stood at around 17.4 percent. The nominal GDP growth as at June 2008 was 46.4 percent.

The domestic policy continues to place emphasis on the imperative to move away from dependency on oil revenues to other areas of the economy as outlined in the Oman Vision 2020 Plan. The objectives of this Plan also include the speeding up of privatisation and the advance of Omanisation.

The effects of the initiatives to diversify have begun to yield results. In an economy that has expanded by 13 percent in 2007, the non-oil industrial sector as a percentage of Gross Domestic Product has increased from 14.1 percent in 2006 to 14.4 percent in 2007.

The Seventh Five Year Development Plan (2006 – 2010), now in its fourth year, has focused on increasing the trade sector’s contribution to the national economy. The total trade in the Sultanate grew 54 percent between June 2007 and June 2008. The trade surplus also grew by 48 percent to RO 2.47 billion in the same period. Trade surplus is at 23.5 percent of Gross Domestic Product compared to the same period in the previous year. Between June 2007 and June 2008 oil exports rose 48 percent, non-oil exports by 74 percent and re-exports by 67 percent.

Financial intermediation has increased from RO 257.5 million for the first six months of 2007 to RO 375.6 million for the first six months of 2008 - an increase of 45.9 percent1. Bank credit as a percentage of GDP has grown from 34 percent in 2006 to 42 percent in 2007. Bank deposits as a percentage of GDP has also gone up from 34 percent to 42 percent. The capital requirements, areas of investment and consumption needs of the market are undergoing a change. With these changes, there has been and will be increased requirements for financial intermediation by the key suppliers of funding to the market. The Banks in the Sultanate will be required to play an important part to support the entire spectrum of activities in the country. Bank Sohar sees an important role for itself in this financial intermediation process.

As part of its focus to diversify the economy away from hydrocarbon sectors, the Government has announced mega infrastructure projects totaling RO 18.5 billion over the next five years. The banking sector is likely to be a major beneficiary of these investments by way of their direct and indirect participation in these investment projects.

Oman’s industrial strategy aims to set up industrial mega-projects that depend on natural gas, such as those in Sohar and Sur and to establish further knowledge based enterprises and privatisation projects. The industrial estates in Rusayl, Sohar, Sur, Salalah, Raysut Nizwa, Buraimi and Al Mazunah Free Zone and Knowledge Oasis Muscat continue to provide a favourable environment for industrial and knowledge based expansion. The socio-economic potential of these developments during the time of project implementation and in the long term thereafter are exciting but challenging.

2. Banking IndustryAt the end of August 2008, the total assets of com-mercial banks stood at RO 12.6 billion, an increase of 46.5 percent 2. The total credit by the commercial banks, which accounts for 66.9 percent of total assets of banks, increased by 52.6 percent to reach RO 8.42 billion. The aggregate deposit increased by 37.6 percent to reach RO 7.86 billion at the end of August 20083. During the period under consideration the overall monetary con-dition was characterised by high growth in money sup-ply and falling interest rates. Broad money supply (M2) increased by 33.9 percent out of which demand deposits grew by 46.5 percent and quasi money ( savings and time deposits, CD’s etc ) grew by 32.2 percent.

The Monetary and Fiscal situation in Oman continued to be resilient to adverse developments taking place in the global financial system. The developments in the global economy were to a large extent due to the widespread use of financial derivatives coupled with the collapse in the mortgage business in several of the international markets. Some impact of the global financial crisis is likely to be felt in the domestic banking industry by way of:

Global credit crunch increasing borrowing costs

The general aversion to risk in the financial market has created a scarcity for US Dollars and other major currencies. This has resulted in an increased cost of borrowing for both financial intermediaries as well as the end users of funds. The recent interest rate cuts and fund injections across the globe have brought some relief in the inter-bank markets but the benefit is yet to percolate to the economy.

Flight of speculative money from the system The recovery of the dollar eased widespread speculation that Gulf Cooperation Council Countries would revalue their currencies. This has resulted in some flushing of liquidity from the system thereby tightening liquidity in the domestic currency markets.

3. Investment Opportunities and Challenges

The Year 2009 will have its share of variables and will be flush with challenges from start to finish. The substantially reduced outlook for growth in the world economy is likely to impact on the commodity prices and on global trade. The general aversion to risk is expected to restrict flow of new capital and bank finances putting pressure on liquidity. It is likely, that the growth rates in

the Sultanate may also be impacted due to the slow down of the world economy. However, there is optimism based on the government’s assurance in boosting the infrastructure spend in the economy and in initiating such steps as are likely to alleviate the effects of the downturn. The assumed oil price of $45 per barrel in the State’s General Budget for 2009 is also likely to provide support for economic growth.

Proactive measures from the apex bank like for maintaining the lending ratio at 85 percent will be further improved to 87.5 percent from January 1, 2009. The availability of swap and direct lending facilities to boost US dollar liquidity is likely to provide a boost to business. The creation of a special OMR 150 million fund by the Ministry of Finance for supporting the flight of speculative capital from the financial system in like manner will also enhance investor confidence.

The banking industry could view an easing of liquidity due to the recent spate of injection of funds into the financial system by central banks across the globe supported by aggressive rate cuts to boost economic activity.

Oman offers a favorable demographic profile for banking with nearly 32 percent of the population being below the age of 15 years. However, the penetration of banking services in Oman remains low despite significant credit growth in the last few years. The average population per branch is only 7,300 people. The ratio of Credit and Deposits to GDP at around 42 percent is also low in comparison to other GCC nations. This provides an ideal opportunity for growing the banking business by improving penetration in the underbanked areas.

Banks will need to gear up their funding capabilities and advisory expertise to match the tenor and complexity of large infrastructure projects planned across the Sultanate. There are substantial opportunities in sunrise sectors like tourism, fisheries, mining and export of value added products which Bank Sohar expects to capitalise.

The Bank will have to develop clear strategies to meet the requirements of qualified personnel to meet the dynamic requirements of business. Increased focus on risk mitigation could require substantial upgradation of the young Omani talent pool through training and career development programs.

4. Business Operations Bank Sohar is the first local bank to open in Oman during the last twelve years. In the second year of operations as

Management Discussion & Analysis Report Management Discussion & Analysis Report

1- Ministry of National Economy - Monthly Statistical Bulletin September 2008 2- Review of Banking & Monetary Developments, August 20083- Review of Banking & Monetary Developments, August 2008

22 23

well, the Bank continued to operate in a highly competi-tive market. The strategies for consolidation, an innova-tive product range, added branch network and emphasis on customer service has enabled the Bank to gain a foot-hold and add value to its brand image.

The Bank’s focus remained on the three main areas - People, Technology and Efficiency. The Bank’s dedication and commitment to excellence and to service since opening for business has contributed in large measure to both customer confidence and trust.

4.1 Retail Banking

Bank Sohar’s initial strategy for retail banking namely to cater to and meet the expectations of all customers through products and services that complement life’s milestones and to meet individual lifestyle requirements continued to be the thrust for business in the second year as well. Retail banking consolidated and improved its market share through novel lifecycle products that of-fered opportunities for new lending as well as for deposit mobilisation. Customers in Oman have responded posi-tively to the Bank’s approach to provide ‘lifecycle’ financial solutions. Within a short span of time, the products of the Bank’s Retail Banking Division have created interest in the market.

The main strategies adopted by the Retail Banking unit were to:

Implement customer segmentation strategy

Understand the customer through market research and structured feedback programmes

Develop products and services with embedded value differentiators to meet the lifecycle require-ment of the customers

Ensure optimum utilisation of resources with a hub-and-spoke distribution model

Strengthen relationships and facilitate cross selling of products with the ‘One-Bank’ approach

Empower front-line officers to provide speedy deliv-ery; and

Enable multiple service delivery channels

During the year a wide range of retail products ranging from Term Deposits, Housing Loans, Debit cards and Credit cards were launched. Multiple service delivery channels i.e. Branches, ATMs, Call Center, Internet Banking and SMS Banking were opened to complement the bouquet of products and services. In order to provide wider access to the customers, the Bank has continued the facility of ATM access through Omanswitch free of charge. Bank Sohar customers were able to access their accounts through more than 500 ATMs located across the country. The bank presently has 11 branches and 12 offsite ATMs spread across the country.

The Bank has ensured unique features in each of its products and services. The customer friendly features include low and flexible installment options, blended insurance service, education advisory services and joint borrowing facilities. On the creditv card front, the special schemes free ‘Priority Pass’ and AAA card membership are some of the unique features offered by the Bank. The ‘Al Mumayaz Savings Scheme’ and the Last Quarter Savings Scheme captured the imagination of the public and helped mobilise the Bank’s savings account balances. In order to provide more convenience to customers all Bank Sohar’s ATM cards were upgraded to Visa Electron Debit cards.

4.2 Corporate BankingThe main focus of the corporate banking group was to :

Provide knowledge banking in focus sectors with sectoral specialisation.

Offer advisory services to nascent industrial clusters in Oman and emerge as a trusted advisor

Follow the Government’s vision in moving away from an oil dependant economy and focus on the growth of the SME segment.

Be a knowledge partner and provide total business solutions to the entity

Structure term credit innovatively with flexible repayment schedule.

Introduce enterprise-level risk management; risk mitigation through early warning signals

Focus on the ‘One Bank’ approach to ensure cross selling of products

Corporate Banking has set up sub-units within the department to concentrate on target economic sectors and to service corporate customers through smart segmentation. Corporate banking desks are functioning at the Bank’s branches in Sohar and Salalah and the bank plans to open similar units in Nizwa and Sur. The orientation of the business group is to understand the customer’s requirement and to be a strategic knowledge partner to the customer.

During the year, the Bank was able to conclude several syndicated deals through both the local and regional banks. The focus in the Small and Medium Enterprise business has been to service the requirements of the underserved units in terms of product offerings and quality of service. Trade Finance has continued to improve scope for business through innovation and the offering of tailor-made solutions for different businesses. The Bank’s focus has remained on providing corporate customers with shortest possible turnaround times and increased functionality through e-banking facilities. The convenience of ‘Al Mumayaz’ Internet Banking service has been extended to corporate customers.The treasury and corporate liability group concentrated on diversifying the funding sources by offering unique products and services. The concentration of efforts was to reduce the cost of liability and achieve a granularity in their sources. During the year, the Bank established lines of credit with many international banks. The investment portfolio of the bank was diversified to achieve maximum return in the long run.

4.3 Finance

The Finance Team at Bank Sohar continues to provide and interpret financial information for the Board of Directors and the Management Team. The Finance Team participates in Strategy Planning and does research and reports on factors influencing business. It helps assess the implications of new or existing ventures and conducts reviews and evaluation of businesses. The Team monitors the Bank’s financial condition through financial data and evaluates the need for change if any in different sectors. The Bank’s Management Information Systems enable

the Finance Team to function proactively. Their analytical inputs help the Bank both in the launch of new business activities and in the assessment of profitability of existing products. The Finance Team facilitates integration and develops the policy framework incorporating business units and support units to create the delivery platform.

4.4 Human Resources

The Bank has carried forward its conviction that the only source of sustainable competitive advantage for an organisation is its people. The Bank’s Human Resource policies rest on global best practices customised to provide an excellent tool for people management.

The bank’s rapid growth in 2008 has offered many rewarding career opportunities for qualified Omanis. The Bank’s objective is to continue to provide opportunities and careers for young Omani nationals. During the year the Bank appointed 23 fresh Omani graduates. The Bank continued to recruit a qualified Omani workforce across the Bank and at different levels.

The Bank believes that learning holds the key for continuous enhancement and upgrading of professional knowledge, skills and behaviour. The Bank’s Learning Centre at Qurum is now operational and has conducted various development programmes for the enhancement of the required competencies. The Human Resources


24 25

Department has placed more focus on induction and familiarisation programmes for fresh entrants and knowledge upgradation for existing employees for improved customer orientation.

During the year, the Bank implemented the new pay scales and salary revision in keeping with the trends in the industry. The Human Resources Department has initiated the Performance Management system to cascade goals and to set and achieve targets. The Department has also initiated succession planning to develop the required talents for business continuity. A series of Staff Engagement Events were held during the year to ensure a work- life balance. The Bank operates in a multi-cultural work environment. The efforts of the Human Resources Department include measures at team building and dialogue that will result in a performance oriented culture.

The Bank has a team of 400 qualified and talented professionals and an Omanisation level of 84% percent.

Through its approach to human resources and its policies, the Bank has developed a strong culture of retention of human resources. The Bank’s aim is to be the “Employer of Choice,” in the Omani banking industry.

4.5 Information Technology & OperationsThe IT strategy of the bank has during the year focused on scaling up the Bank’s operations swiftly. It has addressed the critical needs for successfully running a new Bank with its demanding implementation schedules. The Bank has integrated Information Technology across the value chain to drive its pursuit of operational excellence and innovation. The use of IT as one of the key strategic differentiators has enabled the Bank’s customer centric focus and helped it to meet the changing business imperatives through Product and Service differentiation.

The areas of focus covered:

Connectivity with customers and external agencies to provide a consistent experience at various “touch points”

Building superior analytical capabilities to deliver actionable information at customer “touch points”

High levels of efficiency through automation

Centralised database management and centralised processing

Best-of-breed systems which enable integration of front, middle and back offices (Straight through processing)

Strong built-in surveillance and security systems, providing a “comfort” factor to all users

Predictive analytics to improve targeting, retention, cross-selling, dynamic pricing and fraud management

Real time environment facilitated by high network uptime through proven disaster recovery processes and back-up systems

The Bank’s IT platform on a centralised database architecture and centralised processing provides integration of delivery channels in a secure real-time basis allowing a unified customer view and 24/7 operability. This ensures that the customer is associated with the Bank rather than with just one branch and helps in building long term value relationship.

The Bank has successfully implemented and certified Information Security Management Systems and ISO 27001: 2005 Programme for its Core Banking Systems, IT Processes and Services in both the Head Office and Disaster Recovery site. The ISO 27001 standard was specifically chosen as part of the management’s commitment to continually improve information security posture at the Bank. Mandatory annual audits are required by the standard. Bank Sohar became the first bank in the Sultanate to obtain ISO 27001:2005 for the Bank’s complete IT Services.

For Management of Information Systems, the Bank has adopted Information Technology (IT) security policies and processes based on ISO 27001:2005 framework. The IT Governance is based on COBIT (Control Objectives for Information & Related Technology) & ISO Standard.

Every customer is unique and has diverse needs and expectations. The deployment of Customer Relationship Management to understand these needs has unlocked more value for the Bank. The implementation of an enterprise wide Centralised Banking Solution integrated

with electronic delivery channels has helped Bank Sohar to have a customer-centric focus for improving profitability and broadening its customer base. This strategy has assisted the bank in a fast ramp of customers in a short span of time without compromising on the quality of service. Bank’s reliance on technology and on electronic channels will help the Bank in providing a best in class service at a lower cost.

At its Annual Awards, Banking Technology magazine awarded the Judge’s Special Achievement Award to Bank Sohar for the Bank’s implementation of the Finacle ‘Bank-in-a-Box’ Solution. At the Oman Web Awards 2008 the Bank‘s website was awarded the Gold Award in the category, Banking and Finance. In a short span of time the IT team has been able to assist business in the introduction of the full bouquet of retail and corporate products and provide customers the convenience of technology.

5 Capital StructureBank Sohar had issued 100 million shares of RO 1/- each to the public in December 2006. An amount of RO 0.500 was payable on application and the balance RO 0.500 per share was to be paid by the shareholders within a period not exceeding three years from the date of incorporation.

The call for the balance capital was made in May 2008 and the paid up capital of the bank was raised to RO 100 million. The legal reserve accumulated also includes issue charges of RO 0.020 per share which was collected from the shareholders of the Bank net of utilisations. The nominal value of the Bank’s share was split from RO 1 per share to 100 baiza per share.

6 Financial Risk ManagementAcceptance of various types of risk is integral to the banking business. Sound risk management and the balance of risk-reward trade offs are therefore critical

to a bank’s success. Business and revenue growth have to be weighed in the context of the risks implicit in the bank’s business strategy. Of the various types of risk a bank is exposed to the most important are: Credit Risk, Market Risk, Liquidity Risk and Operational Risk. The identification, measurement, monitoring and management of risk remains a key focus area for Bank Sohar.

The Bank has a well established Risk Management Unit with a team of experienced and competent professionals. The structure for Risk Management consists of the Board of Directors, the Credit & Risk Committee of the Board, Assets and Liabilities Committee (ALCO), which has responsibility for market and liquidity risk and the Operational Risk Committee (ORCO), which is responsible for managing the operational risk in the Bank. The Board of Directors has the overall responsibility for the establishment and oversight of the Risk Management framework in the Bank. The Bank recognises the function of Risk Management as an “Enterprise-wide Risk Management” whose primary responsibility is to ensure the existence of, and compliance with, an effective Risk Management framework in the context of the Bank’s business and operating environment. This involves identification, measurement, mitigation and monitoring of various risks in such a way as to consistently meet the objective of maximising risk-adjusted returns within the defined risk appetite set by the Board of Directors. The Risk Management Unit sets limits which are consistent with the Bank’s risk appetite, monitors and reports on compliance within those limits and provides oversight in relation to the management of risk.

The prime responsibility for managing risk, and for ensuring that controls are put in place in respect of risk, lies with the business units within the Bank. The Bank has a documented approach to the management of risk which is detailed in the risk policy statements. These statements are reviewed annually by the management committees mentioned above and by the Board of Directors to be in line with economic trends and the operating environment. Risk appetite is implemented through risk limits.

6.1 Capital Risk

The Bank has a strong and diverse shareholder profile that gives the Bank the necessary confidence in its ability to raise capital when it is needed.

6.2 Credit Risk

Credit risk arises when a borrower is unable to meet the financial obligations to the lender. This arises primarily


26 27

from loans and other credit based products that are available to the Bank’s customers and from the liquid and investment assets held by the Bank’s Treasury division. Credit Risk is managed at three stages - at the Origination stage, Approval stage and at the Transaction/ Portfolio Monitoring stage. Distinct policies and processes are in place for managing credit risk in the retail and wholesale businesses. The Bank measures, monitors and manages credit risk for each borrower and also at the portfolio level. The Bank’s credit policy has been approved by the Board of Directors. This policy has laid down a Credit Approval structure with specific delegated authorities.

The Bank’s credit risk management policy requires clear segregation of responsibilities relating to acquisition, risk appraisal and credit delivery involving comprehensive due diligence process of quality standards based on international best practices. The credit officers of the Bank evaluate credit proposals on the basis of the approved product policy and risk assessment criteria. Before disbursements are made, the credit officer also conducts a centralised check on the delinquencies database and review of the borrower’s profile.

For wholesale credit exposures, management of credit risk is done through target market definition, standarised credit approval processes which include a well-established procedure of comprehensive credit appraisal and rating. The Bank has developed internal credit rating methodologies for rating obligors. The rating factors in quantitative and qualitative issues and credit enhancement features specific to the transaction. The rating serves as a key input in the approval as well as post-approval credit processes. The rating for every borrower is reviewed at least once a year.

The Bank’s exposure to sensitive sectors like commercial real estate, capital markets and commodities is not significant and its exposure to residential mortgages is well within the regulatory and prudential guidelines. The Bank has in place processes to closely monitor exposures to sensitive sectors.

Industry knowledge is constantly updated through interactions with clients, regulatory bodies and industry experts. On going post-disbursement monitoring is a critical component for maintaining loan quality. Overall portfolio diversification and reviews also facilitate mitigation and management. The bank has taken necessary steps to institute a Loan Review mechanism to independently assess the loan quality and credit grading and provide ongoing assurance to the Board of Directors and to the

regulatory authority.In the retail loan businesses, the credit cycle is managed through appropriate front-end credit, operational and collection processes. For each product, programs defining customer segments, underwriting standards, security structure etc. are specified to ensure consistency of credit buying patterns. With the granularity of individual exposures, retail credit risk is managed largely on a portfolio basis, across various products and customer segments. In the Bank’s retail credit operations, all products, policies and authorisations are approved by the Board or a Committee of the Board. The Bank continuously reviews the retail credit parameters based on portfolio analytics.

The core banking software in use at the Bank has the capability to carry out asset classification on a daily basis. In accordance with this, specific provisioning is made as per the guidelines of the Central Bank of Oman. Non-specific standard asset provisioning is also made as per the guidelines of the Central Bank of Oman The Bank has developed a strong Management Information System from the core banking software which enables proactive credit risk management. The Bank is in the process of setting up a robust portfolio risk management frame work with software support to conduct scenario analysis, stress tests and loan loss forecasting capabilities. The objective of this is twofold - to move swiftly in to advanced approaches under Basel II for capital adequacy computation as also to use the guidelines to make risk based strategic business decisions and capital allocation, which is expected to result in maximizing the risk adjusted returns.

In the case of Credit Risk, the Bank follows the Standardised Approach with 100 percent risk weights for all assets and a comprehensive risk mitigation approach. This is in compliance with guidelines issued by the Central Bank of Oman, on the implementation of BASEL II recommendations. The Bank has already installed a standard credit rating model recognised by the Central Bank of Oman to be used as a first step credit filter and indicator of individual asset quality and also of portfolio quality. All the Corporate/SME borrowers are rated to verify the acceptance of their credit proposals.

Looking to the size of the bank, the credit approval authority is adequately decentralised with appropriate control reporting systems.

The distribution of the Bank’s portfolio among the broad divide of Retail/Personal and Others is largely decided by regulatory guidelines. The Bank’s loan book is relatively young and concentration risk is not significant.

The Bank’s credit risk management policies have played a significant role in maintaining superior asset quality with Gross and Net NPA at 0.12% and 0.08% respectively. The Bank will continue to take all the necessary steps to monitor risk. The introduction of on going credit quality checks and the Loan Review Mechanism is a step in this direction.

6.3 Market Risk

Market risk is the possibility of loss arising from changes in the value of a financial instrument as a result of changes in market variables such as interest rates, exchange rates, credit spreads and other asset prices. The Bank’s exposure to market risk is a function of its trading and asset-liability management activities and its role as a financial intermediary in customer-related transactions. The objective of market risk management is to minimise the impact of losses on earnings and equity capital due to market risk. The Bank has a well defined structure to manage market risk with clear lines of demarcation between the dealers, back office and middle office.

The Mid Office tracks and monitors Market Risk and reports the position of Market Risk on Daily and Monthly Basis. The mid Office sets and reviews risk limits through ALCO and .monitors the actual exposures vis-a vis limits. Bank manages Foreign Exhange Risk through monitoring open position limits. The interest rate risk is managed through ALM limits, Gap Analysis and studying the impact of interest rate shock.

Market risk policies include risk governance framework, risk assessment tools, methodologies to assess risk and framework for risk reporting and monitoring. The Market Risk Policy and ALCO Policy are approved by the Board of Directors. The Assets & Liability Management Committee (ALCO) stipulates liquidity and interest rate risk limits, monitors adherence to limits, articulates the Bank’s interest rate view and determines the strategy in the light of the current and expected environment. These policies and processes are articulated in the ALM Policy. The Investment Policy addresses issues related to investments in various trading products.

Interest rate risk is measured through the use of re-pricing gap analysis. Liquidity risk is measured through liquidity gap analysis. The Bank ensures adequate liquidity at all times through systematic funds planning and maintenance of liquid investments as well as by focusing on more stable funding sources such as retail deposits. The Bank limits its exposure to exchange rate risk by stipulating position

limits and closely monitoring this.In compliance with the guidelines issued by the Central Bank of Oman on the implementation of BASEL II recommendations, the Bank follows the Standardised Duration based Approach for providing capital for market risk

The Assets and Liability Committee (ALCO) meets on a fortnightly basis to discuss the maturity mismatches and the liquidity risks that Bank Sohar is exposed to, so as to take steps to unwind from such risks. ALCO also discusses and finalises action plans to manage interest rate risks. With the guidance of ALCO, the Bank’s Treasury manages interest rate and foreign exchange risk, adhering to the treasury policy guidelines, which stipulates the appropriate limits.

6.4 Liquidity Risk

Liquidity Risk arises when a bank is not able to meet its financial obligations as they fall due, or can do so only at excessive cost. The objective of the Bank’s liquidity policy is therefore to enable the Bank to maintain sufficient liquid assets to cover cash flow imbalances and fluctuations in funding, to maintain full public confidence in the Bank’s business and to enable the Bank to meet all of its financial obligations.

The day-to-day management of liquidity continues to be the responsibility of the Treasury Division, which manages the Bank’s portfolio of liquid assets and the Bank’s contingency funding plans. The Bank’s liquidity risk policy is monitored by the Assets and Liability Committee (ALCO), which receives regular reports on the Bank’s liquidity position. The Bank also complies with regulatory guidelines which govern the scope and nature of the Bank’s holding of liquid assets. The Market Risk Policy stipulates broad guidelines in respect of liquidity risk management such as gap limits. Dynamic liquidity is tracked by advanced inputs from business units on disbursements and the availing of credit.

6.5 Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risks in the Bank are managed through a comprehensive internal control framework. The control framework is designed based on categorisation of all functions into front office (comprising business groups), mid-office (comprising credit and treasury mid-offices), and back-office, (comprising operations and corporate and support functions).

The Bank is required by mandate to develop an operational


28 29

risk management framework. In accordance with these guidelines a comprehensive Operational Risk Management Policy is developed and is being placed to Bank’s Board of Directors for approval.. The policy is applicable across the Bank and aims to ensure clear accountability, responsibility and mitigation of operational risk. The Bank has constituted an Operational Risk Committee (ORCO) to oversee the management of Operational Risk. The Operational Risk Management Framework comprises of Operational Risk Policy, methods of identification of risks, assessment of risks, and controls to mitigate these risks, monitoring and mitigation of risk.

In line with the directions of the Central Bank of Oman, the Bank is providing capital for operational risk as per the Basic Indicator Approach of Basel-II.Bank Sohar views the implementation of the Basel II Guidelines as an opportunity to systematically review its risk management systems and practices with an objective of aligning them to international best practices. The Bank has adopted the Standarised Approach for Credit Risk and Market Risk and the Basic Indicator Approach for Operational Risk. The Bank has assessed the key requirements of the New Capital Adequacy Framework contained in the Basel II Guidelines issued by the apex bank and has set in place processes for effective implementation.

6.6 Internal Control

BankSohar recognises effective internal control as a key component of operational risk management. Internal controls and the internal audit process are considered by the bank as the primary means to control operational risk. A system of effective internal controls is a critical component of operational risk management and a foundation for safe and sound operations of the bank. Bank Sohar has put in place a mechanism to control the activities both at the central level and at the unit levels with the following objectives:

Effectiveness and efficiency of operations

Reliability of financial reporting

Compliance with applicable laws and regulations

Internal Control for effectiveness and efficiency of operations addresses the Bank’s basic business objectives including performance and profitability goals and the safeguarding of the Bank’s resources. A key component of the Bank’s internal control system is the operation of a solid accounting and information system and includes the preparation of reliable financial statements and other financial information. The internal controls for compliance are in place to ensure that the Bank adheres to the laws

and regulations and by doing so avoids damages and negative consequences.Internal control framework at Bank Sohar has been designed with all the controls necessary to provide reasonable assurance about the achievement of the objectives.

Process Documentation: The Bank has with the assistance of external experts developed and documented all the material and significant processes of the bank, which provides a good framework of the activities, the process work flow, their control systems and the responsibility of each of the activities and control measures. 7 Financial Review 2008The net loss for the period ended 31st December, 2008 is OMR 2.26 million. This is arrived at after non-specific credit loss provisioning for the period which amounted to OMR 5.16 million and Provision for Impairment of Investment portfolio of OMR 2.39 million. However, before the non-specific credit loss provisioning and Provision for Impairment on Investment, the Bank has made an operating profit of OMR 5.15 million which is 80% higher than the operating profit for 2007. This has been achieved primarily by a fast ramp up in growth of loan book arising from product innovation with an equal focus on lending and risk management.

In this period the Bank built a total customer credit exposure of OMR 644 million and customer deposits of OMR 638 million servicing a total of 42,571 customers. The savings deposits have built up to OMR 74 million. The growth in customer assets during the period was 112 % and customer deposits were 126%. The Bank was able to increase its market share consistently during the year and has closed the year with 6.64 % of private sector credit and 6.77 % of private deposits, as computed with reference to industry data of November 2008.

The Basic loss per share was 2.264 Baiza per share.

7.1 Net Interest Income

Net interest income of OMR 10.81 million was primarily due to rapid growth in loan book. This has been achieved primarily by fast ramp up in growth of customer credit arising from new products which were actively taken up by the market. The Bank’s average total asset was OMR 604 million. The average net interest margin was 1.78% with the average interest yield of 5.45% and gross aver-age interest expense of 4.22%.

7.2 Non-interest income

Non-interest income was OMR 6.92 million. Fees

and commission include account servicing fees, credit related fees, advisory fees and other management fees, sales commission, placement fees and syndication fees. The Bank’s focus is to significantly increase its fee based income.

7.3 Operating expenses

The Bank’s operating expenses were OMR 12.58 million in 2008. Operating expenses include the cost of Bank’s network of eleven operational branches, six of which were launched during the Year 2008. Operating expenses is primarily due to the staff cost, depreciation and other administrative costs. Average staff strength during the year was 310. Other administrative costs are primarily due to advertisement, communication, recruitment and information technology initiatives. The Bank’s cost to income ratio was 71% in 2008.

7.4 Provisions

The Bank made non specific provisions of OMR 5.16 million for possible credit losses inherent within the loans and advances portfolio in 2008. In the absence of any past credit history the Bank has adopted the Central Bank of Oman’s norms for making the provision against loans and advances on a portfolio basis which represents the possible loss to the portfolio. The bank has made a specific provision of OMR 0.274 million in conformity to Central Bank Regulations. As per the Central Bank of Oman guideline diminution in market value of investments more than 35% has been provided as a ‘Provision for Impairment in Investments’ and an amount of RO 2.39 million has been provided in the Income Statement.

7.5 Assets

Total assets at 31 December 2008 were OMR 843 million. It mainly consists of cash and Central Bank of Oman balance, placements and balances with other banks, loans and advances and fixed assets. Net loans and advances as at 31 December 2008 was OMR 634 million.

7.6 Capital Adequacy

The Bank’s capital adequacy ratio, calculated according to guidelines set by the Bank of International Settlements (BIS) was 13.72 % as at 31 December, 2008. While the international requirement as per BIS is 8%, the Central Bank of Oman’s regulations stipulate that banks maintain a BIS ratio of 10% or more.

Tier 1 capital was OMR 96.1 million and Tier 2 capital was OMR 9.6 million.

7.7 Liquidity Management

Liquidity risk is the risk that the Bank will be unable to meet its liabilities when they fall due. To limit this risk, management has arranged diversified funding sources, manages assets with liquidity in mind, and monitors liquidity on a daily basis.

Cash and balances with Central Banks, treasury bills, certificates of deposits issued by CBO and placements with banks accounted for 22 % of total assets and 29% of total deposits at 31 December 2008. A detailed note on maturity of liability is disclosed in section D2 of the financial statements.

7.8 Interest Rate Risk Management

The Asset and Liability Committee (ALCO) manages the Bank’s interest rate risk exposure. The Bank is exposed to interest rate risk as a result of mismatches of interest rate re-pricing of assets and liabilities. The Bank manages the liquidity risk by appropriately sourcing funding requirements to match the maturity buckets. A detailed note on interest risk management is disclosed in section D3 of the financial statements.


31

Our business is about banking and for us, above all that, is about customer relationships.

32 33

1. Introduction The following disclosures are being made in accordance with the revised capital adequacy rules under the Basel II

framework issued by the Central Bank of Oman in September 2006 (BM 1009). These disclosures aim to provide market participants material qualitative and quantitative information about Bank Sohar’s risk exposures, risk manage-ment strategies and processes of capital adequacy.

2. Subsidiaries And Significant Investments Bank Sohar is not part of any Group either as a member or as the top corporate entity in the Group.

3. Capital Structure The authorised share capital of the Bank is 1,000,000,000 shares of RO 0.100 each. The issued and paid up capital of

the Bank is 1,000,000,000 shares of RO 0 .100 each.

The Bank issued 100,000,000 shares of RO 1 each to the public in December 2006. An amount of RO 0.500 with the issue expenses of RO 0.020 was payable on application. Each RO 1 share was split into 10 shares of RO 0.100 each in an extraordinary general meeting held on 26 April 2008. Consequently the balance callable amount was reduced to RO 0.050 per share. The balance RO 0.050 per share was called upon to be paid by the shareholders on 10 May’08. The Bank has received the call money on the issued shares.

The Bank has a diverse shareholder profile providing the Bank the necessary opportunity to raise additional capital upon necessity.

Capital Structure RO’000

Tier 1 Capital

Paid up share capital 100,000

Legal reserve 1,731

Accumulated losses (4,750)

Minority interests in the equity of subsidiaries -

Innovative instruments -

Other Capital instruments -

Regulatory calculation differences deducted from Tier 1 capital -

Other amounts deducted from Tier 1 capital, including goodwill, deferred tax and investments (867)

Total amount of Tier 2 Capital 9,562

Total amount of Tier 3 Capital -

Total amount of Tier 2 Capital and Tier 3 Capital 9,562

Other deductions from capital -

Total eligible capital 105,676

As at 31 December 2008 As at 31 December 2008

Statutory Disclosures Under Basel II Framework Statutory Disclosures Under Basel II Framework

4. Capital AdequacyThe Bank’s capital adequacy ratio, calculated according to guidelines set by the Bank of International Settlements (BIS) as adopted by CBO was 13.72%. While the international requirement as per BIS is 8%, the Central Bank of Oman’s regula-tions stipulates that local banks maintain a Minimum Capital Adequacy ratio of 10%. The Banks strategy is to maintain adequate capital to allow the bank to operate under adverse market conditions and which can absorb unforeseen losses.

The Bank has a capital adequacy assessment process through which senior management assesses the Banks capital against its risk profile. Asset Liability Committee (ALCO) is the forum in which the capital adequacy is assessed, based on the next quarter’s business forecast and the risk profile envisaged. The management believes to be proactive and therefore, have decided to have an internal threshold limit of 12%, for initiating action to ensure maintenance of regula-tory minimum capital adequacy ratio of 10% at all the times. This enables senior management to ensure that the Bank has adequate capital to support all material risks it is exposed to, while achieving the desired business growth.

The Bank has adopted the Standardized approach, under the Basel II regulations, as prescribed by the Central Bank of Oman for all Banks operating in Oman with effect from 1 January 2007.

Total and Tier 1 Capital Ratio, Risk Weighted Assets (RO’000)

SINo

Details Gross Balances ( Book Value)

Net Balances ( Book Value)*

Risk Weighted Assets

1 On-balance sheet items 855,629 842,911 610,540

2 Off - balance sheet items 234,209 234,209 85,386

3 Derivatives 56,446 56,446 1,255

4 Total for Credit Risk 1,146,284 1,133,566 697,181

5 Risk Weighted Asset for Market Risk 39,580

6 Risk Weighted Asset for Operations Risk 33,242

7 Total Risk Weighted Assets 1,133,566 770,003

8 Tier 1 Capital 96,114 -

9 Tier 2 Capital 9,562 -

10 Tier 3 Capital - -

11 Total Regulatory Capital 105,676 -

11.1 Capital requirement for credit risk 69,718

11.2 Capital requirement for market risk 3,958

11.3 Capital requirement for operational risk 3,324

12 Total required capital 77,000

13 Tier 1 Ratio 12.48%

14 Total Capital Ratio 13.72%

* Net of provisions

34 35

5. Risk Exposure And Assessment

5.1 Approach and Policy

The Bank’s activities expose it to a variety of financial risks. Taking risk is core to the financial business, and the operational risks are an inevitable consequence of being in business. The Bank’s aim is therefore to achieve an appropriate balance between risk and return and minimize potential adverse effects on the Bank’s financial performance. Credit risk is the risk that a customer or counterparty will fail to meet their obligations to the Bank as they become due. Credit risk arises primarily from loans and other credit products available to the customers and from the liquid and investment assets held by our Treasury division. Credit Risk is managed at three stages - at the Origination stage, Approval stage and at the Transaction/ Portfolio Monitoring stage. Bank’s credit policy has been approved by the Board of Directors. This policy has laid down a Credit Approval structure with specific delegated authorities.

All the retail loans follow a template approach based on parameters set in Board approved policies for various retail lending products. All the commercial and corporate credit originations have to go through a borrower rating system of Moody’s, which has been acquired by the Bank during the current year, and only those with acceptable ratings are progressed further for approval of credit.

In compliance with guidelines issued by the Central Bank of Oman, on the implementation of BASEL II recommenda-tions, in the case of Credit Risk, the Bank follows Standardised Approach with risk weights as recommended by Central Bank of Oman.

The core banking software in use at the Bank has the capability to carry out asset classification on a daily basis. In accord-ance with this, specific provisioning is made as per the guidelines of the Central Bank of Oman. Non-specific standard asset provisioning is made as per the guidelines of the Central Bank of Oman.

The Bank presently is in the process of finalization of a disclosure policy and the disclosures presently made are in accordance with the Central Bank of Oman and other statutory requirements.

5.2 Credit Risk Measurement

The Bank measures credit risk in terms of asset quality using two primary measures- the provisioning ratio and the non performing loans ratio. The provisioning ratio is the annual charge for provisions as a percentage of total loans. The non performing loans ratio is the ratio of non performing loans as a percentage of total loans. Further, the risk movement is tracked through portfolio analysis with focus on concentrations. These are detailed out in the following tables.

5.3 Definitions of past due and impaired

The classification of credit exposures is considered by the bank for identifying impaired credit facilities, as per CBO Circular BM 977 dated 25 September 2004.

5.4 Total gross credit risk exposures, plus average gross exposure over the period broken down by major types of credit exposure

SlNo Type of Credit Exposure

Average Gross Exposure Total Gross Exposure

Current YearRO’000

Previous YearRO’000

31-Dec-2008RO’000

31-Dec-2007RO’000

1 Overdrafts 22,969 11,697 39,178 26,819

2 Personal Loans 216,865 78,981 311,797 136,075

3 Loans against Trust Receipts 9,760 555 11,527 2,562

4 Other Loans 216,422 43,496 278,725 137,487

5 Bills Purchased / Discounted 2,035 108 2,874 396

6 Any Other - - - -

7 Total 468,051 134,837 644,101 303,339

5.5 Geographic distribution of exposures, broken down in significant areas by major type of credit exposure

RO’000

SINo

Type of Credit Exposure Oman

Other GCC

countriesOECD

countries India Pakistan Others Total

1 Overdrafts 39,178 - - - - - 39,178

2 Personal Loans 311,797 - - - - - 311,797

3Loans againstTrust Receipts

11,527 - - - - - 11,527

4 Other Loans 254,849 19,641 - 2,310 - 1,925 278,725

5Bills Purchased / Discounted

2,874 - - - - - 2,874

6 Any Other - - - - - - -

7 Total 620,225 19,641 - 2,310 - 1,925 644,101



36 37

5.6 Industry or counter party type distribution of exposures, broken down by major types of Credit exposure

RO’000

SI No Economic Sector Overdraft Loans

Bills purchased / Discounted Others Total

Off - balance sheet

exposure

1 Import Trade 34 34,106 - 158 34,298 9,376

2 Export Trade 950 - - - 950 83

3 Wholesale & Retail Trade 4 9,661 - - 9,665 -

4 Mining & Quarrying - 1,636 - 1,615 3,251 14

5 Construction 3,371 52,597 2,346 6,255 64,569 24,494

6 Manufacturing 550 19,393 - - 19,943 1,595

7 Electricity, gas and water - 2,925 - 131 3,056 -

8 Transport and Communication 8 2,093 - - 2,101 1,448

9 Financial Institutions 477 20,117 - - 20,594 670

10 Services 5,240 8,258 - 664 14,162 20,209

11 Personal Loans 1,620 311,797 - - 313,417 -

12 Agriculture and Allied Activities 160 - 439 1,306 1,905 -

13 Government - 36,227 - - 36,227 7,684

14 Non - Resident Lending - 23,876 - - 23,876 -

15 All Others 26,764 67,836 89 1,398 96,087 2,499

16 Total 39,178 590,522 2,874 11,527 644,101 68,072

5.7 Residual contractual maturity breakdown of the whole portfolio, broken down by major types of credit exposures

RO’000

SINo Time Band Overdraft Loans

Billspurchased / Discounted Others Total

Off - balancesheet

exposure

1 upto 1 month 39,178 57,908 2,874 11,527 111,487 5,771

2 1 - 3 months - 85,532 - - 85,532 6,879

3 3 - 6 months - 20,652 - - 20,652 4,388

4 6 - 9 months - 16,732 - - 16,732 1,946

5 9 - 12 months - 17,312 - - 17,312 9,025

6 1 - 3 years - 94,683 - - 94,683 29,959

7 3 - 5 years - 61,136 - - 61,136 101

8 Over 5 years - 236,567 - - 236,567 10,003

9 Total 39,178 590,522 2,874 11,527 644,101 68,072

5.8 By major industry or counter party type

SI No Economic Sector Gross Loans

Of which, NPLs

General Provisions

held

Specific Provisions

heldReserve interest

Provisions made during the period

Advanceswritten off during the

period

1 Import Trade 34,298 - 343 - - 167 -

2 Export Trade 950 - 10 - - 6 -

3Wholesale & Retail Trade

9,665 - 97 - - 97 -

4Mining & Quarrying

3,251 - 33 - - 28 -

5 Construction 64,569 163 644 37 13 450 -

6 Manufacturing 19,943 16 199 4 1 83 -

7Electricity, gas and water

3,056 - 31 - - 31 -

8Transport and Communication

2,101 - 21 - - 21 -

9Financial Institutions

20,594 - 206 - - 36 -

10 Services 14,162 - 142 - - 68 -

11 Personal Loans 313,417 552 6,246 187 22 3,695 -

12Agriculture and Allied Activities

1,905 - 19 - - 12 -

13 Government 36,227 - 362 - - 121 -

14Non- Resident Lending

23,876 - 239 - - 89 -

15 All Others 96,087 41 970 10 - 493 -

16 Total 644,101 772 9,562 238 36 5,397 -



38 39

5.9 Amount of impaired loans and, if available, past due loans provided separately broken down by significant geographic areas including, if practical, the amounts of specific and general allowances related to each geographical area

RO’000

SINo Countries Gross Loans

Of which, NPLs

General Provisions

held

Specific Provisions

heldReserve interest

Provision made during

the year

Advances written

off during the year

1 Oman 620,225 772 9,324 238 36 5,397 -

2Other GCC Countries

19,641 - 196 - - - -

3OECD Countries

- - - - - - -

4 India 2,310 - 23 - - - -

5 Pakistan - - - - - - -

6 Others 1,925 - 19 - - - -

7 Total 644,101 772 9,562 238 36 5,397 -

5.10 Movements of Gross Loans

RO’000

SI No Details

Performing Loans Non - Performing Loans

StandardSpecial

Mention Sub-standard Doubtful Loss Total

1 Opening Balance 303,339 - - - - 303,339

2 Migration / changes (+/-) (772) - 415 341 16 -

3 New Loans 340,762 - - - - 340,762

4 Recovery of Loans - - - - - -

5 Loans written off - - - - - -

6 Closing Balance 643,329 - 415 341 16 644,101

7 Provisions held (9,562) - (103) (121) (14) (9,800)

8 Reserve Interest - - (10) (24) (2) (36)

6 Credit Risk: Disclosures for Portfolios Subject to the Standardised Approach

6.1 Qualitative Disclosures

For portfolios under standardised approach:The Bank is following Standardised Approach in assessing regulatory capital for credit risk. For sovereign risk, zero risk weight is applied, as permitted under this approach, whereas for exposures on Banks, the risk weight applied depends on the rating of the banks by Moody’s, subject to the respective country rating. In the absence of external ratings for most of the Corporates, the Bank treats all Corporates as unrated and apply 100% risk weight on their funded exposures. On the off balance sheet exposures, the relevant credit conversion factors are applied and aggregated to Banks or the Corporates, as the case may be, and then the risk weight is applied as stated above.

6.2 Quantitative Disclosures

The Bank is following an uniform approach of considering all corporates as unrated and applying 100% risk weights.

7 Credit Risk Mitigation: Disclosure for Standardised ApproachThe Bank does not make use of netting whether on or off-balance sheet. The Bank’s credit policy specifies the acceptable types of collateral, source of valuation and frequency of revaluation as once in three years for mortgaged properties. The main types of acceptable collaterals are cash deposits, equity shares listed in the Muscat Securities Market and Mortgages. The main type of guarantors is individuals and corporates. The Bank is taking only the cash deposits and equity shares for the purpose of credit risk mitigation under comprehensive approach.

RO’000

SI No

Gross creditExposure beforeCCF, CRM and

provisions

Eligible financialCollateral

(after Application of Haircuts) Eligible guarantees

1 Claims on Sovereigns 22,654 - -

2 Claims on Banks 69,216 - -

3 Claims on Corporates 564,598 34,029 -

4 Retail 312.939 - -

5 Other Exposures 20,502 - -

Total 989,909 34,029 -

8. Market RiskMarket risk is inherent in the financial instruments associated in the banks operations and /or activities including loans, deposits, securities, short term borrowings, long term debt, trading account assets and liabilities and derivatives. Market risk is the exposure to loss resulting from the changes in the interest rates, foreign currency exchange rates, equity prices and commodity prices. Market risk management deals with the impact of change in market variables on the earnings and economic value of the bank.

Market risk is relevant to banking book and trading book but its measurement and management might differ in each book

9. Market Risk in Trading BookMarket risk incorporates a range of risks, but the principal elements are interest rate risk and foreign exchange risk.

Interest rate risk primarily arises on the mismatching of the Bank’s assets with its funding. Mismatches or gaps in the amount of assets, liabilities and off balance sheet instruments can generate interest rate risk, the impact of which is a function of interest rate changes and the maturity profile of assets and liabilities. This risk is managed by the bank through the use of appropriate tools and financial instruments, including derivatives.

Foreign Exchange Risk is the risk of financial loss related to change in value of assets /liabilities resulting from changes/adverse movement in the financial markets. Foreign currency risk arises as a result of activity undertaken by the Bank when raising and investing funds in currencies other than Omani Rials and in assuming open positions in foreign currencies. Currency risk is managed primarily through the use of currency swaps and forward foreign exchange contracts. The risk is also managed, where appropriate, by foreign exchange currency liabilities being matched with assets denominated in the same foreign currency. Bank through tools like Open Position Limits monitors and controls the foreign exchange risk.



40 41

In compliance with guidelines issued by the Central Bank of Oman on the implementation of BASEL II recommendations, the Bank follows the established approaches and techniques as per the guidelines to manage market risk and in providing capital to cover market risk.

The Assets and Liability Committee (ALCO) conducts periodical meetings to discuss the mismatches in assets and liabilities and assesses the interest rate risk, foreign exchange risk and liquidity risk that Bank Sohar is exposed to, so as to take steps to manage such risks. With the guidance of ALCO, the Bank’s Treasury manages interest rate and foreign exchange risks, adhering to the policy guidelines, which stipulate appropriate limits.

The capital charge for the applicable market risk is furnished below:

RO’000

Interest rate position risk -

Equity position risk 502

Foreign exchange risk 2,665

Commodity risk -

10. Interest Rate Risk in Banking BookThe Asset and Liability Committee (ALCO) manages the Bank’s interest rate risk exposure. The Bank is exposed to inter-est rate risk as a result of mismatches of interest rate re-pricing of assets and liabilities. The Bank manages the interest risk by pricing through floating rates of interest, interest re-set clause for fixed interest loans and pricing the assets and liabilities on the same index instrument as far as possible. The statement on sensitivity of assets and liabilities has been prepared in accordance with guidelines provided in circular BM 955 dated May 7, 2003.The interest rate risk is assessed through Interest Rate Gap Analysis. Bank assesses the interest rate impact (both earnings perspective and economic value perspective) as per Basel-II guidelines communicated by Central Bank of Oman by applying interest rate shock of 200 bps and takes measures to reduce the impact. The impact of 200 bps shock on Net Interest Income and on capital is shown in Annexure-1.

11. Liquidity RiskThe Banks approach to managing liquidity is to ensure , as far as possible , that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions without incurring unacceptable losses or risking damage to the Banks reputation.

Central Treasury receives information from other business units regarding the liquidity profile of their financial assets and liabilities and details of other projected cash flows arising from projected future business. Central Treasury then maintains a portfolio of short-term liquid assets, largely made up of short-term liquid investment securities, loans and advances to Banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Bank as a whole. The liquidity requirements of business units are met through short-term loans from Central Treasury to cover any short-term fluctuations and longer term funding to address any structural liquidity requirements. In this process due care is taken to ensure that the Bank complies with all the Central Bank regulations.

All liquidity policies and procedures are subject to review and approved by ALCO. Computation of liquidity gap on matu-rity of assets and liabilities is provided in Annexure 2. The computation has been prepared in accordance with guidelines provided in Circular BM 955 dated May 7, 2003.

12. Operational RiskOperational risk is defined as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational Risk arises due to variety of causes associated with the bank’s processes, personnel, technology and infrastructure and from external events and to include risks other than credit, market and liquidity risks.

Bank’s objective is to manage operational risk to avoid /reduce financial losses to the bank by establishment of necessary controls, systems and procedures. Bank recognises that over controlled environment will affect bank’s business and earn-ings, besides adding to costs. Therefore bank aims at effective management of operational risk through control optimisa-tion and well established systems, methods and governance framework.

The primary responsibility for development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall bank stand-ards in the following areas for management of operational risk:

Clear reporting lines

Proper delegation of powers

Appropriate segregation of duties and authorisation of transactions through a maker checker system and authorisation matrix

Ownership reconciliation and monitoring of accounts

Documentation of controls and processes

Compliance with regulatory and other legal requirements

Periodic assessment of the operational risks faced and evaluating the adequacy of controls and procedures to address the risks identified

Reporting of Operational Losses and incidents triggering operational losses and remedial action

Development of contingency plans

Training, skill upgradation and professional development

Ethical and business standards

Risk mitigation through insurance, wherever desirable

Compliance with banks standards is supported by a programme of periodic reviews undertaken by Internal Audit. The findings of internal audit are discussed with the business unit heads and summary observations of audit are placed to Audit Committee and Senior Management of the Bank for corrective action.

Bank with the assistance of external experts have documented processes and controls relating to the material activities of the bank. The process document included process map with a SOX format, detailing the work flow, controls and the responsibilities of the persons involved in the process.

Thus bank manages the operational risks through the process of well laid down policies, procedures and governance system, which is periodically reviewed and improved.



42 43

Statement on Sensitivity of Assets and Liabilities (SAL) Annexure 1

RO’000

Up to 1 month

1 - 3months

3 - 6 months

6 - 12 months

1 - 3 years

Over3 years

Nonsensitive Total

Cash on Hand - - - - - - 4,006 4,006

Deposits with CBO - - - - - - 89,901 89,901

Balances due from other banks

50,655 18,560 1,925 - - - - 71,140

Investments - 18,420 1,848 - 2,200 - 3,135 25,603

Bills of exchange and promissory notes

14,401 - - - - - - 14,401

Overdrafts 40,747 - - - - - - 40,747

Loans and advances 49,916 63,442 20,779 10,358 43,769 397,993 - 586,257

Non PerformingLoans

- - - - - 496 - 496

Fixed Assets - - - - - - 13,730 13,730

Accrued interest - - - - - - 2,305 2,305

Other Assets - - - - - - 3,130 3,130

Swaps - 17,671 - 21,693 9,433 - - 48,797

Total assets 155,719 118,093 24,552 32,051 55,402 398,489 116,207 900,513

Demand deposits - - - - - - 56,278 56,278

Saving deposits - - - - - - 73,670 73,670

Time deposits 141,737 68,231 21,080 111,822 63,256 20,827 426,953

Other deposits 612 - - - - - - 612

Balances due to other banks

10,795 69,839 - - - - - 80,634

Certificate of deposits - - - 30,000 60,100 - - 90,100

Interest payable - - - - - - 5,813 5,813

Provision & other liabilities

- - - - - - 11,614 11,614

Capital - - - - - - 100,000 100,000

Reserves - - - - - - 10,792 10,792

Retained earnings - - - - - - (2,486) (2,486)

Others(Current year’s profit/loss)

- - - - - - (2,264) (2,264)

Swaps - 17,588 - 23,100 9,625 - - 50,313

Total capital and liabilities 153,144 155,658 21,080 164,922 132,981 20,827 253,417 902,029

Gap 2,575 (37,565) 3,472 (132,871) (77,579) 377,662 (137,210) (1,516) Refer schedule D3.3 in the Annual Financial Statements for sensitivity on income to interest rate shock.

As at 31 December 2008

Statutory Disclosures Under Basel II Framework

Statement on Maturity of Assets and Liabilities (MAL) Annexure 2

RO’000

Up to 1 month

1 -3months

3 – 6Months

6 – 9months

9 – 12months

1 -3years

Over3 years Total

Cash on Hand 4,006 - - - - - - 4,006Deposits with CBO 89,481 - - - - - 420 89,901Balances due from other banks

50,655 18,560 1,925 - - - - 71,140

Investments - 18,427 1,848 - - 5,328 - 25,603Bills of exchange andpromissory notes

4,928 8,172 1,301 - - - - 14,401

Overdrafts 2,037 2,037 2,037 2,037 2,037 10,187 20,375 40,747Loans and advances 51,698 66,418 24,835 12,223 13,691 62,694 354,698 586,257Fixed Assets - - - - - - 13,730 13,730Accrued interest 2,305 - - - - - - 2,305Other Assets 2,757 - - - - 373 - 3,130Swaps - 17,671 - - 21,693 9,433 - 48,797Non Performing Loans - - - - 124 - 372 496Spot & forward purchase 14,290 15,830 3,815 - - - - 33,935Letters of credit / guarantees and acceptances

17,493 8,558 4,169 2,424 5,712 30,061 546 68,963

Committed Lines of Credit 7,700 - - - - - - 7,700Total assets 247,350 155,673 39,930 16,684 43,257 118,076 390,141 1,011,111Current deposits 11,256 11,256 8,442 5,628 5,628 14,068 56,278Saving deposits 3,684 3,684 3,684 3,684 3,684 18,418 36,832 73,670Time deposits 133,420 60,667 18,720 29,753 63,427 58,782 62,184 426,953Other deposits 612 - - - - - - 612Balances due to other banks 10,795 17,325 - - - 52,514 - 80,634Certificate of deposits - - - 5,000 53,100 32,000 - 90,100Interest payable 5,813 - - - - - - 5,813Provision & other liabilities 3,814 800 - - - - 7,000 11,614Swaps 17,588 - - 23,100 9,625 - 50,313Spot & forward sales 14,306 15,220 3,820 - - - - 33,346Letters of credit / guarantees and acceptances

17,493 8,558 4,169 2,424 5,712 30,061 546 68,963

Committed Lines of Credit - - - - - 7,700 7,700Capital - - - - - - 100,000 100,000Reserves - - - - - - 10,792 10,792Retained earnings - - - - - - (2,486) (2,486)Others (Current Year’s Profit/Loss)

- - - - - 373 (2,637) (2,264)

Total capital and liabilities 201,193 135,098 38,835 46,489 154,651 209,473 226,299 1,012,038Cumulative capital and liabilities

201,193 336,291 375,126 421,615 576,266 785,739 1,012,038 -

Gap 46,157 20,575 1,095 (29,805) (111,394) (91,397) 163,842 (927)Cumulative Gap 46,157 66,732 67,827 38,022 (73,372) (164,769) (927) -Cumulative Gap as a % of Cumulative Liabilities

23 20 18 9 (13) (21) - -

Statutory Disclosures Under Basel II Framework As at 31 December 2008

4544 Bank Sohar Annual Report - 2008

KPMG4th Floor, HSBC Bank BuildingMBDP.O. Box 641P.C. 112Sultanate of Oman

KPMG, a branch office established under the laws of Oman,is a member of KPMG International, a Swiss cooperative. C.R. No. 1/30936/6

Tel 968 24709181Fax 968 24700839

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF BANK SOHAR SAOG

Report on the financial statementsWe have audited the financial statements of Bank Sohar SAOG (“the Bank”) set out on pages 46 to 92, which comprise the balance sheet as at 31 December 2008, and the income statement, the statement of changes in equity and the cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s responsibility for the financial statementsThe Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, the disclosure requirements of the Capital Market Authority and the Commercial Companies Law of 1974, as amended. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appro-priate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ responsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Bank’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Bank’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by the Bank’s Management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

OpinionIn our opinion, the financial statements present fairly, in all material respects, the financial position of the Bank as at 31 December 2008 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Report on other Legal and Regulatory requirementsIn our opinion, the financial statements of the Bank as at and for the year ended 31 December 2008, in all material respects, comply with:

• the relevant disclosure requirements of the Capital Market Authority; and• the Commercial Companies Law of 1974, as amended.

27 January 2009

The pursuit of infinite possibilities for our customers will take us to new levels of service and excellence

46 47

31 December 31 December2008

USD'000

31 December2008

RO’000

31 December

2007 2007

USD'000 Notes RO’000

ASSETS

53,057 243,927 Cash and balances with Central Bank B1 93,912 20,427

95,881 179,782 Due from Banks and other money market placements B2 69,216 36,914

776,457 1,647,442 Loans and advances (net) B3 634,265 298,936

142,857 66,982 Available-for-sale investments B4 25,788 55,000

12,044 35,662 Property, equipment and fixture B5 13,730 4,637

11,501 15,584 Other assets B6 6,000 4,428

————— ————— ————— —————

1,091,797 2,189,379 842,911 420,342

========= ========= ========= =========

LIABILITIES

74,322 234,374 Due to Banks and other money market deposits B7 90,234 28,614

236,623 234,026 Certificates of deposit B8 90,100 91,100

630,706 1,423,151 Customers’ deposits B9 547,913 242,822

- 18,182 Deferred income B10 7,000 -

22,162 29,031 Other liabilities B11 11,177 8,532

————— ————— ————— —————

963,813 1,938,764 746,424 371,068

————— ————— ————— —————

SHAREHOLDERS’ EQUITY

129,870 259,740 Share capital B12 100,000 50,000

4,571 4,496 Legal reserve B13 1,731 1,760

- (1,283) Fair value losses B14 (494) -

(6,457) (12,338) Accumulated losses (4,750) (2,486)

————— ————— ————— —————

127,984 250,615 96,487 49,274

————— ————— ————— —————

1,091,797 2,189,379 842,911 420,342

========= ========= ========= =========

127.984 250.615 Net assets per share (in baizas) B15 96.487 49.274

========= ========= ========= =========

69,943 176,810 CONTINGENT LIABILITIES B16 68,072 26,928

140,810 433,797 COMMITTMENTS B16 167,012 54,212

The financial statements were approved and authorized for issue by the Board of Directors on 27 January 2009 and signed on their behalf by:

_____________________ _____________________ Chairman Deputy Chairman

The attached notes A1 to D6 form an integral part of these financial statements.

The report of the auditors is set forth on page 45.

As at 31 December 2008Balance Sheet

From9 April 2007

From9 April 2007

up to 31 December

200731 December

200831 December

2008

up to 31 December

2007

USD’000 USD’000 Notes RO’000 RO’000

24,294 85,740 Interest income C1 33,010 9,353 (14,642) (57,665) Interest expense C2 (22,201) (5,637)

———— ———— ———— ———— 9,652 28,075 Net interest income 10,809 3,716 12,231 17,974 Other operating income C3 6,920 4,709

———— ———— ———— ———— 21,883 46,049 OPERATING INCOME 17,729 8,425

———— ———— ———— ————

OPERATING EXPENSES (7,680) (18,335) Staff costs (7,059) (2,957) (5,886) (11,665) Other operating expenses C4 (4,491) (2,266) (878) (2,678) Depreciation B5 (1,031) (338)

———— ———— ———— ———— (14,444) (32,678) (12,581) (5,561)

———— ———— ———— ———— 7,439 13,371 OPERATING PROFIT 5,148 2,864 (1,774) - Net pre-incorporation expense C5 - (683) (686) - Net pre-operating expense C6 - (264)

- (6,203) Impairment on investments (2,388) - (11,436) (14,018) Impairment for credit losses B3 (5,397) (4,403)

———— ———— ———— ————

(6,457) (6,850)(LOSS) FROM OPERATIONS AFTER PROVISIONS (2,637) (2,486)

———— ———— ———— ————- 969 Deferred tax income C7 373 -

———— ———— ———— ————

(6,457) (5,881) NET (LOSS) FOR THE YEAR (2,264) (2,486)

======== ======== ======== ========

(6.457) (5.881) Basic (loss) per share for the year - in baizas C8 (2.264) (2.486)

======== ======== ======== ========

(7.945) (5.881) (Loss) per share for the year (annualised) - in baizas C8 (2.264) (3.059)

======== ======== ======== ========



Year ended 31 December 2008Income Statement

48 49

Share capital(Note B12)

RO’000

Legal reserve(Note B13)

RO’000

Fair value losses(Note B14)

RO’000

Accumulated losses

RO’000Total

RO’000

Issue of shares 50,000 - - - 50,000

Net loss for the period - - - (2,486) (2,486)

Share issue expenses collected - 2,000 - - 2,000

Issue expenses - (240) - - (240) ======== ======== ======== ======== ========

Balance as at 31 December 2007 50,000 1,760 - (2,486) 49,274 ======== ======== ======== ======== ========

Balance as at 1 January 2008RO’00050,000

RO’0001,760

RO’000-

RO’000(2,486)

RO’00049,274

Final call on issued shares 50,000 - - - 50,000

Cumulative fair value reserve - - (494) - (494)

Transfer to legal reserve - - - - -

Issue expenses - (29) - - (29)

Net loss for the year - - - (2,264) (2,264) ======== ======== ======== ======== ========

Balance as at 31 December 2008 100,000 1,731 (494) (4,750) 96,487 ======== ======== ======== ======== ========

USD’000 USD’000 USD’000 USD’000 USD’000

Issue of shares 129,870 - - - 129,870

Net loss for the period - - - (6,457) (6,457)

Share issue expenses collected - 5,194 - - 5,194

Issue expenses - (623) - - (623) ======== ======== ======== ======== ========

Balance as at 31 December 2007 129,870 4,571 - (6,457) 127,984 ======== ======== ======== ======== ========

Balance as at 1 January 2008 USD’000

129,870 USD’000

4,571 USD’000

- USD’000

(6,457) USD’000

127,984

Final call on issued shares 129,870 - - - 129,870

Cumulative Fair Value Reserve - - (1,283) - (1,283)

Transfer to legal reserve - - - - -

Issue expenses - (75) - - (75)

Net loss for the year - - - (5,881) (5,881) ======== ======== ======== ======== ========

Balance as at 31 December 2008 259,740 4,496 (1,283) (12,338) 250,615 ======== ======== ======== ======== ========



Year ended 31 December 2008Statement of Changes in Equity

From9 April 2007 up to

31 December 2007 2008USD’000

2008RO’000

From9 April 2007 up to 31

December 2007

USD’000 RO’000 OPERATING ACTIVITIES

(6,458) (6,849) Net loss for the year before tax (2,637) (2,486)Adjustments for :

886 2,678 Depreciation 1,031 34111,437 14,018 Impairment for credit losses 5,397 4,403

- 94 Reserve interest on loans 36 - - (3) Profit on sale of property, equipment and fixtures (1) -

(231) - Profit on sale of investment securities - (89)(2,626) (2,286) Interest on investment (880) (1,011)

======== ======== ======== ========3,008 7,652 Operating profit before changes in operating assets and liabilities 2,946 1,158

(787,894) (885,096) Changes in loans and advances (gross) (340,762) (303,339)(11,501) (3,192) Changes in other assets (1,229) (4,428)236,623 (2,597) (Repayment) issue of certificates of deposit (1,000) 91,100630,706 792,445 Changes in customers’ deposits 305,091 242,82252,727 (32,987) Changes in due to banks and other money market deposits (12,700) 20,30022,161 6,869 Changes in other liabilities 2,645 8,532

======== ======== ======== ========145,830 (116,906) Net cash (used in)/from operating activities (45,009) 56,145

======== ======== ======== ========INVESTING ACTIVITIES

(445,696) (44,979) Purchase of investments (net) (17,317) (171,593)432,940 12,987 Proceeds from sale / redemption of investments 5,000 166,682(12,930) (8,127) Purchase of property, equipment and fixtures (3,129) (4,978)

2,626 2,286 Interest received on investments 880 1,011- 16 Proceeds from sale of property, equipment and fixtures 6 -

======== ======== ======== ========(23,060) (37,817) Net cash used in investing activities (14,560) (8,878)

======== ======== ======== ========FINANCING ACTIVITIES

129,870 129,870 Receipts from final call on shares 50,000 50,0004,571 (75) Share issue expenses (paid) collected (29) 1,760

======== ======== ======== ========134,441 129,795 Net cash from financing activities 49,971 51,760

======== ======== ======== ========

257,211 (24,930)NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (9,598) 99,027

- 257,213 CASH AND CASH EQUIVALENT AT BEGINNING OF THE YEAR 99,027 -======== ======== ======== ========

257,211 232,283 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 89,429 99,027======== ======== ======== ========

REPRESENTING:53,057 243,927 Cash and balances with Central Banks 93,912 20,42795,881 179,782 Due from Banks and other money market placements 69,216 36,914

129,870 23,208 Available-for-sale investments 8,935 50,000(21,597) (214,634) Due to Banks and other money market deposits (82,634) (8,314)

======== ======== ======== ======== 257,211 232,283 89,429 99,027

======== ======== ======== ========



Year ended 31 December 2008Cash Flow Statement

50 51

A1 Legal Status and Principal ActivitiesBank Sohar SAOG (“the Bank”) was established in the Sultanate of Oman on 4 March 2007 as a joint stock company and is primarily engaged in corporate and retail banking activities within the Sultan-ate of Oman. The Bank operates in Oman under a banking licence issued by the Central Bank of Oman and is covered by its deposit insurance scheme. The Bank started commercial operations from 9 April 2007. The registered address of the Bank is PO Box 44, Hai Al Mina, Postal Code 114, Muscat, Sultanate of Oman.

The Bank employed 400 employees as of 31 December 2008 (2007:219).

A2 Basis of PreparationA2.1 Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) requirements of the Oman Commercial Companies Law of 1974, as amended and the disclosure requirements of the Capital Market Authority and the applicable regulations of the Central Bank of Oman.

The financial statements were approved by the Board of Directors on 27 January 2009.

A2.2 Basis of measurement

The financial statements have been prepared under the historical cost convention except for the following:

derivative financial instruments are measured at fair value

financial instruments at fair value through income statement are measured at fair value

available for sale financial assets are measured at fair value

A2.3 Functional and presentation currency

These financial statements are presented in Rials Omani rounded, except as indicated, to the nearest thousand Rials Omani. The func-tional currency of the Bank’s operations is Rial Omani.

A2.4 Use of estimates and judgements

The preparation of financial statements requires management to make judgements, estimates and assumptions that effect the appli-cation of accounting policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

The estimates and associated assumptions are based on industry data and various other factors that are believed by the Bank to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources.

The estimates and underlying assumptions are reviewed on a regu-lar basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only

that period or in the period of the revision and future periods if the revision affects both current and future periods. Estimates con-sidered by the Bank to have a significant risk of material adjustment in subsequent periods primarily consist of the provision for impair-ment of loans and advances.

A3 Significant Accounting PoliciesThe accounting policies set out below have been applied consistent-ly by the Bank to all periods presented in these financial statements.

A3.1 Foreign currency translation

Transactions denominated in foreign currencies are translated into Rial Omani and recorded at rates of exchange ruling at the value dates of the transactions. Monetary assets and liabilities denominat-ed in foreign currencies are translated into Rial Omani at exchange rates ruling at the balance sheet date. Realised and unrealised gains and losses are dealt with in the income statement. The foreign cur-rency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the pe-riod.

A3.2 Revenue & expense recognition

A3.2.a Interest income & expense

Interest income and expense is recognised in the income statement using the effective interest rate method. The effective interest rate is the rate that exactly discounts the estimated future cash pay-ments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. The effective interest rate is established on initial recognition of the financial asset/liability and is not revised subsequently. Interest Income and expense presented in the income statement include:Interest on financial assets and liabilities at amortised cost on an

effective interest rate basis.

Interest on available for sale investment securities on an effec-tive interest basis.

Fair value changes in qualifying derivatives (including hedge inef-fectiveness) and related hedged items when interest rate risk is the hedged risk.

A3.2.b Fair value gains and losses

Fair value changes on derivatives held for risk management pur-poses, and financial assets other than loans and advances are carried at fair value through profit or loss, are presented in ‘net income on other financial instruments carried at fair value’ in the income statement.

Net Income from financial instruments at fair value relates to non-qualifying derivatives held for risk management purposes and finan-cial assets designated at fair value through income statement, and in-clude all realised and unrealised fair value changes interest, dividend and foreign exchange differences.A3.2.c Dividend income

Dividend income is recognized when the right to receive income is established.

A3.2.d Fees and commission

Fees and commission income and expenses that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate.

Fees and Commission income include account servicing fees, credit related fees, advisory fees, administration fees and other manage-ment fees, sales commission, placement fees and syndication fees. These are recognised as the related services are performed.

A3.2.e Provisions

A provision is recognised if, as a result of a past event, the Bank has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are equivalent to the amortised value of the future liabilities.

A3.2.f Offsetting of income & expense

Income and expenses are presented on a net basis only when per-mitted by the accounting standards, or for gains and losses arising from a group of similar transactions such as in the Banks trading activity

A3.3.a Recognition

The Bank initially recognises loans and advances, deposits, debt se-curities issued and subordinated liabilities on the date that they are originated. All other financial assets and liabilities (including assets and liabilities designated at fair value through income statement) are initially recognised on the trade date at which the Bank becomes a party to the contractual provisions of the instrument.

Where assets are received without consideration these are account-ed at ‘fair value’ in the balance sheet under the appropriate classifica-tion and consequently ‘deferred income’ is created and disclosed as ‘other liabilities’. Deferred income is recognized as ‘other income’ based on the encumbrance stipulated or usage of the asset.

A3.3.b Derecognition

The Bank derecognises a financial asset when the contractual rights to the cash flow from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transac-tion in which substantially all the risks and rewards of ownership of the financial asset are transferred. The Bank derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

A3.3.c Offsetting of assets and liabilities

Financial assets and liabilities are set off and the net amount present-ed in the balance sheet when, and only when, the Bank has a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.A3.3.d Amortised cost measurement

The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amorti-sation using effective interest method of any difference between the initial amount recognised and the maturity amount , minus any reduction for impairment.

A3.3.e Fair value measurement

For investments traded in organized financial markets, fair value is determined by reference to quoted market prices at the close of business on the balance sheet date. The fair value of interest-bearing items is estimated based on dis-counted cash flows using interest rates for items with similar terms and risk characteristics. For investments where there is no quoted market price, a reasonable estimate of the fair value is determined by reference to the current market value of a similar investment, or is based on the expected discounted cash flows. Investments having short term maturities are not discounted.

A3.3.f Loans and advances

Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and the Bank does not intend to sell immediately or in the near term. Loans and advances are carried at amortized cost less specifically identified after collective allowance for impairment. Specific provi-sions are made against the carrying amount of loans and advances that are identified as being impaired based on regular reviews of outstanding balances to reduce the impaired loans and advances to their recoverable amounts.

A3.3.g Identification and measurement of impairment

Collective impairment provisions are maintained in respect of in-curred losses, which have not yet been specifically identified within the portfolio of loans and advance. The recoverable amount of loans and advances is calculated at the present value of the expected future cash flows discounted at the original effective interest rate. Short-term balances are not discounted.

When a loan is known to be uncollectible, all the necessary legal procedures have been completed, and the final loss has been deter-mined, the loan is written off directly to income statement.

Non Specific provisions are established to meet the credit risks in-herent within the loans and advances portfolio. This provision has been made to cover potential impairment which although not spe-cifically identified, are to be present in the Bank’s portfolio of finan-cial assets based on industry data.

A3.3.h Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, unrestricted bal-ances held with central Banks and highly liquid financial assets with original maturities of less than three months, which are subject to insignificant risk of changes in their fair value, and are used by the Bank in management of its short term commitments. Cash and cash equivalents are carried at amortised cost in the balance sheet.

A3.3.i Balances due from Banks and other money market

Notes to Financial StatementsAt 31 December 2008


52 53

placements

These are stated at amortized cost less any allowance for impair-ment.

A3.3.j Designation at fair value through income statement

This category includes those assets and liabilities, which are initially recognized at cost and re-measured at fair value. All related realized and unrealized gains or losses are included in the income statement in the period in which they arise.

A3.3.k Trading assets and liabilities

Trading assets and liabilities are those assets and liabilities that the Bank acquires or incurs principally for the purpose of selling or re-purchasing in the near term, or holds as a portfolio that is managed together for short term profit or position taking.

Trading assets and liabilities are initially recognised and subsequently measured at fair value in the balance sheet with transaction costs taken directly to income statement. All changes in fair value realised or unrealised are recognised as a part of net trading income in income statement. Trading assets and liabilities are not reclassified subsequent to their initial recognition. Interest earned or dividends received are included in the interest and dividend income respec-tively.

A3.3.l Non-trading investments

These are classified as follows:

Available for sale

Held to maturity

All non-trading investments are initially recognised at cost, being the fair value of the consideration given including acquisition costs.

Available for sale

Available-for-sale financial investments are those which are desig-nated as such or do not qualify to be classified as designated at fair value through income statement, held to maturity or loans and ad-vances. They may be sold in response to liquidity needs or changes in market conditions. They include equity instruments, money mar-ket papers and other debt instruments.

After initial measurement, available for sale financial investments are subsequently measured at fair value. Unrealised gains and losses are recognised directly in equity in the ‘Available for sale reserve.’ When the security is disposed off, the cumulative gain or loss previously recognised in equity is recognised in the income statement in ‘Net gains or loss from financial investments through equity’. Where the Bank holds more than one investment in the same security they are deemed to be disposed of on a first-in-first-out basis. Inter-est earned whilst holding available for sale financial investments are reported as interest income using the effective interest rate. Divi-dends earned whilst holding available for sale financial investments are recognised in the income statement as ‘Other operating income’ when the right of income has been established. The losses arising from impairment of such investments are recognised in the income

statement in ‘Impairment losses on financial investments.’

Held to maturity

Held-to-maturity investments are non derivative assets with fixed or determinable payments and fixed maturity that the Bank has the positive intent and ability to hold financial assets to maturity; they are stated at amortized cost using the effective interest rate method less impairment losses. Any sale or re-classification of a significant amount of held-to-maturity investments not close to their maturity would result in the re-classification of all held-to-maturity invest-ments as available-for-sale, and prevent the Bank from classifying investment securities as held-to-maturity for the current and follow-ing two financial years.

A3.3.m Repurchase and resale agreements

Assets sold with a commitment to repurchase (repos) at a speci-fied future date are recognised in the balance sheet and are meas-ured in accordance with accounting policies for trading securities or investment securities. The counter party liability for amounts received under these agreements is included in due to Banks and other financial institutions. The difference between sale and repur-chase price is treated as interest expense and accrued over the life of the repo agreement. Assets purchased with a corresponding commitment to resell at a specified future date (reverse repos) are not recognised in the balance sheet and the amounts paid under these agreements are included in deposits with Banks and other financial institutions. The difference between purchase and resale price is treated as interest income and accrued over the life of the reverse repo agreement.

A3.3.n Acceptances

Acceptances are disclosed on the balance sheet under other assets with corresponding liability disclosed under other liabilities. There-fore, there is no off balance sheet commitment for acceptances.

A3.3.o Derivatives held for risk management purposes

Derivatives held for risk management purposes include all derivative assets and liabilities that are not classified as trading assets and liabili-ties. Derivative held for risk management purposes are measured at fair value in the balance sheet. The treatment of changes in their fair value depends on their classification into the following categories:

Fair value hedge When a derivative is designated as a hedge of the change in

fair value of a recognised asset or liability or a firm commit-ment, changes in the fair value of the derivative are recognised immediately in income statement together with changes in the fair value of the hedged item that are attributable to the hedged risk.

If the derivative expires or is sold, terminated, or exercised, no longer meets the criteria for fair value hedge accounting, or the designation is revoked, hedge accounting is discontinued. Any adjustment up to that point, to a hedged item for which the effective interest method is used, is amortised to profit or loss as part of the recalculated effective interest rate of the item over its remaining life.

Cash flow hedge When a derivative is designated as a hedge of the variability

in cash flows attributable to a particular risk associated with a recognised asset or a liability or a highly probable forecast transaction that could affect income statement, the effective portion of changes in the fair value of the derivative are recog-nised directly in equity. The amount recognised in equity is re-moved and included in income statement in the same period as the hedged cash flows affect profit or loss under the same income statement line item as the hedged item. Any ineffective portion change in the fair value of the derivative is recognised immediately in income statement.

If the derivative expires or is sold, terminated, or exercised, or no longer meets the criteria for cash flow hedge accounting, or the designation is revoked, then the hedge accounting is discontinued and the amount recognised in equity, remains in equity until the forecast transaction affects income statement. If the forecast transaction is no longer expected to occur, then the hedge accounting is discontinued and the balance in equity is recognised immediately in income statement.

Other non-trading derivative When a derivative is not held for trading, and is not designated

in a qualifying hedge relationship, all changes in its fair value are recognised immediately in income statement as a component of net income on other financial instruments carried at fair value.

A3.3.p Property, equipment and fixtures

Items of property, equipment and fixtures are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditure that are directly attributable to the acquisition of the asset. Depreciation is provided on a straight-line basis over the es-timated useful lives of property, equipment and fixtures. The esti-mated useful lives for the current period are as follows:

Years

Motor vehicles 3

Furniture & fixtures 3

Office Equipment 6-7

Production Software 6-7

The assets’ residual values, useful lives and depreciation methods are reviewed and adjusted if appropriate at each balance sheet date.

A3.3.q Deposits, debt securities issued and subordinated liabilities

All money market and customer deposits are carried at amortised cost. Deposits, debt securities issued and subordinated liabilities are measured at their amortized cost using the effective interest method. The Bank classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the con-tractual terms of the instrument.

A3.3.r Impairment of financial assets and provisions

An assessment is made at each balance sheet date to determine whether there is objective evidence that a specific financial asset may be impaired. If such evidence exists, the estimated recoverable amount of that asset is determined and any impairment loss, based on the net present value of future anticipated cash flows or fair value, recognised in the income statement.

A provision for onerous contracts is recognised when the expected benefits to be derived by the Bank from the contract are lower than the unavoidable cost of meeting its obligation under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. The Bank also recognises any impairment loss on the asset associated with the contract before establishing a provision.

A3.4 Taxation

Taxation is provided for, based on the tax laws of Sultanate of Oman. Income tax comprises current and deferred tax. Income tax expense is recognised in the income statement except to the ex-tent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary difference when they reverse, based on the laws that have been enacted or substantively enacted by the balance sheet date.

A deferred tax asset is recognised only to the extent that it is prob-able that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reviewed at each bal-ance sheet date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

A3.5 Fiduciary assets

Assets held in trust or in a fiduciary capacity are not treated as as-sets of the Bank and accordingly are not included in these financial statements.

A3.6 Pre-incorporation expense

The expenses incurred, net of interest income, prior to incorpo-ration of the Bank up to 3rd March 2007, has been classified as pre-incorporation expenses and has been written off in the income statement.



54 55

A3.7 Pre-operating expense

The expenses incurred, net of interest income, after incorporation of the Bank on 4th March 2007 upto commencement of business on 9th April 2007, has been classified as pre-operating expenses and has been written off in the income statement.

A3.8 Trade and settlement date accounting

All “regular way” purchases and sales of financial assets are recog-nised on the trade date, i.e. the date that the entity commits to pur-chase or sell the asset. Regular way purchase or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.

A3.9 Leases

Operating lease payments are recognised as an expense in the in-come statement on a straight-line basis over the lease term.

A3.10 Financial Guarantees

Financial guarantees are contracts that require the Bank to make specified payments to reimburse the holder for a loss it incurs be-cause a specified debtor fails to make payment, when due in accord-ance with the terms of a debt instrument.

Financial guarantee liabilities are initially recognised at their fair value, and the initial fair value is amortised over the life of the financial guarantee. The guarantee liability is subsequently carried at the high-er of this amortised amount and the present value of any expected payment (when a payment under the guarantee has become prob-able). The unamortized value or present value of the expected pay-ment arising from the financial guarantee as the case may be is included in the other liabilities.

A3.11 Employee benefits

A3.11.a Terminal benefits

The terminal benefits for Omani employees are provided in accord-ance with the Sultanate of Oman’s Social Insurance Law of 1991, and are recognised as an expense in the income statement as in-curred.

The Bank’s obligation in respect of non Omani terminal benefits, which is an unfunded defined benefit retirement plan, is amount of future benefit that such employees have earned in return for their services in the current and prior periods. The obligation is calcu-lated using the project unit credit methods and is discounted to its present value.

A 3.11.b Short term benefits

Short term benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A provision is recognised for the amount expected to be paid if the Bank has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

A3.12 Earnings per share

The Bank presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period. Annualised EPS is calculated by annualizing the basic EPS for the whole year. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and weighted average number of ordinary shares outstanding for the effects of all dilu-tive potential ordinary shares, which comprise convertible notes or similar instruments.

A3.13 Segment reporting

A segment is a distinguishable component of the Bank that is en-gaged in providing products or services (business segment) which is subject to risks and rewards that are different from those of other segments. The Bank’s primary format for segment reporting is based on responsibility centres for customer focus.

A3.14 Comparative figures

The Bank commenced operations on 9th April 2007. The balance sheets as of the end of the current period ending 31 December 2008 and a comparative balance sheet as of the end of the imme-diately preceding fiscal year ending 31 December 2007 have been presented.

Comparative figures have been provided for the period from 9 April 2007 to 31 December 2007 due to non-availability of comparative data for twelve months of 2007 as the Bank commenced its opera-tions only on 9 April 2007.

The statement showing changes in equity cumulatively for the cur-rent financial year to date 31 December 2008, with a compara-tive statement for the comparable year-to-date period from 9 April 2007 to 31 December 2007 have been presented.

A 3.15 New standards and interpretations not yet adopted

IFRS 8 Operating Segments introduces the “management ap-proach” to segment reporting. IFRS 8, which would become man-datory for the Bank’s 2009 financial statements. This will require a change in the presentation and disclosure of segment informa-tion based on the internal reports that are regularly reviewed by the Bank’s “chief operating decision maker” in order to assess each segment’s performance and to allocate resources to them. Currently the Bank presents segment information in respect of its business segments (see note A3.13). This standard will have no effect on the Bank’s reported total profit or loss or equity. The Bank is currently in the process of determining the potential effect of this standard on the Bank’s segment reporting.

Revised IAS 1 Presentation of Financial Statements (2007) introduces the term “total comprehensive income”, which represents changes in equity during a period other than those changes resulting from transactions with owners in their capac-ity as owners. Total comprehensive income may be presented

in either a single statement of comprehensive income (effec-tively combining both the income statement and all non-owner changes in equity in a single statement), or in an income state-ment and a separate statement of comprehensive income. Revised IAS 1, which becomes mandatory for the Bank’s 2009 financial statements, is expected to have a significant impact on the presentation of the financial statements as the Bank plans to provide total comprehensive income in a single statement of comprehensive income for its 2009 financial statements.

Revised IAS 23 Borrowing Costs removes the option to expense borrowing costs and requires that an entity capitalize borrow-ing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Revised IAS 23 will become mandatory for the Bank’s 2009 financial statements and will constitute a change in accounting policy for the Bank. In accordance with the transitional require-ments, the Bank will apply the revised IAS 23 to qualifying assets for which capitalization of borrowing costs commences on or after the effective date. Therefore there will be no impact on prior periods in the Bank’s 2009 financial statements.

Amended IAS 27 Consolidated and Separate Financial State-ments (2008) requires accounting for changes in ownership interests in a subsidiary that occur without loss of control, to be recognized as an equity transaction. When the Bank loses con-trol of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognized in profit or loss. The amendments to IAS 27, which become manda-tory for the Bank’s 2010 financial statements, are not expected to have a significant impact on the financial statements.

Amendments to IAS 32 and IAS 1 Presentation of Financial State-ments – Puttable Financial Instruments and Obligations Arising on Liquidation require puttable instruments and instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquida-tion to be classified as equity if certain conditions are met. The amendments, which become mandatory for the Bank’s 2009 fi-nancial statements with retrospective application required, are not expected to have any significant impact on the financial statements.

The International Accounting Standards Board made certain amendments to existing standards as part of its first annual im-provements project. The effective dates for these amendments vary by standard and most will be applicable to the Bank’s 2009 financial statements. The Bank does not expect these amend-ments to have any significant impact on the financial statements.

Amendments to IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items clarifies the application of existing principles that determine whether specific risks or portions of cash flows are eligible for designation in a hedging relationship. The amendments will become mandatory for the Bank’s 2010 financial statements, with retrospective application required. The Bank is currently in the process of evaluating the potential effect of this amendment.

IFRIC 16 - Hedges of a Net Investment in a Foreign Operation clarifies that:

net investment hedging can be applied only to foreign ex-change differences arising between the functional currency of a foreign operation and the parent entity’s functional cur-rency and only in an amount equal to or less than the net assets of the foreign operation

the hedging instrument may be held by any entity within the Bank except the foreign operation that is being hedged

on disposal of a hedged operation, the cumulative gain or loss on the hedging instrument that was determined to be effective is reclassified to profit or loss.

The Interpretation allows an entity that uses the step-by-step method of consolidation an accounting policy choice to de-termine the cumulative currency translation adjustment that is reclassified to profit or loss on disposal of a net investment as if the direct method of consolidation had been used. IFRIC 16, which becomes mandatory for the Bank’s 2009 financial statements, applies prospectively to the Bank’s existing hedge relationships and net investments. The Bank does not expect these amendments to have any significant impact on its financial statements.



56 57

B1 Cash and Balances with Central Bank

31 December

2007

USD’000

31 December2008

USD’000

31 December2008

RO’000

31 December

2007

RO’000

3,366 10,403 Cash 4,005 1,296

13 13 Insurance deposit with Central Bank of Oman 5 5

130 1,091 Capital deposit with Central Bank of Oman 420 50

49,548 232,420 Unrestricted balances with Central Banks 89,482 19,076

======= ======= ======= =======

53,057 243,927 93,912 20,427

======= ======= ======= =======

The capital and insurance deposits with the Central Bank of Oman cannot be withdrawn without the approval of the Central Bank of Oman.

B2 Due from Banks and other Money Market Placements

31 December

2007

USD’000

31 December2008

USD’000

31 December 2008

RO’000

31 December

2007

RO’000

Local Currency:

42,792 7,792 Due from other Banks 3,000 16,475

————— ————— ————— —————

42,792 7,792 3,000 16,475

————— ————— ————— —————

Foreign Currency:

25,629 165,419 Due from other Banks 63,686 9,867

27,460 6,571 Nostro balances abroad 2,530 10,572

————— ————— ————— —————

53,089 171,990 66,216 20,439

————— ————— ————— —————

95,881 179,782 Total 69,216 36,914

======= ======= ======= =======

B3 Loans and Advances

31 December2007

USD’000

31 December2008

USD’000

31 December 2008

RO’000

31 December 2007

RO’000

432,309 858,919 Corporate loans 330,684 166,439

355,584 814,071 Personal loans 313,417 136,900

======= ======= ======= =======

787,893 1,672,990 Gross loans and advances 644,101 303,339

(11,436) (24,836) Impairment allowance on portfolio basis (9,562) (4,403)

- (712) Impairment allowance on specific basis (274) -

======= ======= ======= =======

776,457 1,647,442 Net loans and advances 634,265 298,936

======= ======= ======= =======

Personal loans include RO 12,346,914 provided to staff on concessional terms (2007: RO 5,714,902).

Loans and advances comprise:

31 December2007

USD’000

31 December2008

USD’000

31 December2008

RO’000

31 December2007

RO’000

710,549 1,533,824 Loans 590,522 273,562

69,660 101,761 Overdrafts 39,178 26,819

6,655 29,940 Loan against trust receipts 11,527 2,562

1,029 7,465 Bills discounted 2,874 396

======= ======= ======= =======

787,893 1,672,990 Gross loans and advances 644,101 303,339

(11,436) (24,836) Impairment allowance on portfolio basis (9,562) (4,403)

- (712) Impairment allowance on specific basis (274) -

======= ======= ======= =======

776,457 1,647,442 Net loans and advances 634,265 298,936

======= ======= ======= =======



58 59

B3 Loans and Advances (continued)

As per the CBO requirements, the movement in the impairment allowance is as analysed below:

31 December2007

USD’000

31 December2008

USD’000Loan Loss Provision

31 December 2008

RO’000

31 December 2007

RO’000

Impairment allowance on portfolio basis

- 11,436 Balance at beginning of year 4,403 -

11,436 13,400 Provided during the year 5,159 4,403

======= ======= ======= =======

11,436 24,836 Balance at end of year 9,562 4,403

======= ======= ======= =======

Specific Provision

- - Balance at beginning of year - -

- 618 Provided during the year 238 -

======= ======= ======= =======

- 618 Balance at end of year 238 -

======= ======= ======= =======

Reserve Interest

- - Balance at beginning of year - -

- 94 Reserved during the year 36 -

======= ======= ======= =======

- 94 Balance at end of the year 36 -

======= ======= ======= =======

Impairment allowance on portfolio basis is established to meet the credit risks inherent within the loans and advances on portfolio basis.

All loans and advances require payment of interest, some at fixed rates and others at rates that reprice prior to maturity. Interest reserve ac-count is maintained by the Bank to comply with rules, regulations and guidelines issued by CBO against loans and advances which are impaired. As of 31 December 2008, loans and advances on which interest is not being accrued or where interest has been reserved amounted to

RO 772,436 (2007: Nil). B3 Loans and Advances (continued)

The table below analyses the concentration of loans and advances by economic sector:

31 December2007

USD’000

31 December2008

USD’000

31 December2008

RO’000

31 December2007

RO’000

1,694 4,948 Agriculture 1,905 652

62,551 94,096 Government 36,227 24,082

60,005 167,712 Construction 64,569 23,102

44,156 53,491 Financial institutions 20,594 17,000

45,719 89,086 Import trade 34,298 17,602

995 2,468 Export trade 950 383

31,278 51,800 Manufacturing 19,943 12,042

355,584 814,071 Personal 313,417 136,900

19,122 36,784 Services 14,162 7,362

38,886 62,016 Non-resident 23,876 14,971

1,322 8,444 Mining and Quarrying 3,251 509

126,581 288,074 Others 110,909 48,734

-------------- -------------- -------------- --------------

787,893 1,672,990 644,101 303,339

======= ======= ======= =======

B4 Available-for-Sale Investments

Carrying/ Fair value31 December 2008

RO’000

Cost31 December 2008

RO’000

Carrying/ Fair value31 December 2007

RO’000

Cost31 December 2007

RO’000

Unquoted investments 20,629 20,889 55,000 55,000

Quoted investments 5,159 7,781 - -

-------------- -------------- -------------- --------------

Balance at end of year 25,788 28,670 55,000 55,000

======= ======= ======= =======

USD’000 USD’000 USD’000 USD’000

Unquoted investments 53,582 54,257 142,857 142,857

Quoted investments 13,400 20,210 - -

-------------- -------------- -------------- --------------

Balance at end of year 66,982 74,467 142,857 142,857

======= ======= ======= =======

Treasury bills and Certificates of Deposit were earlier shown as held to maturity and valued at amortised cost. During the previous year, a significant amount of treasury bills were sold before maturity and accordingly under IAS 39 these are classified as available-for-sale investments and valued at fair value.



60 61

B5 Property, Equipment and Fixtures

Freehold Land

Production Software

Furniture & fixtures

Office Equipments

Motor Vehicles

Capital Work in progress Total

RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000

At cost:

1 January 2008 - 2,502 336 858 145 1,137 4,978

Additions* 7,000 1,020 1,053 736 202 118 10,129

Disposals - - - - (6) - (6)

Transfers - 1 - 1,008 - (1,009) -

——— ——— ——— ——— ——— ——— ———

Carrying Value at Cost 7,000 3,523 1,389 2,602 341 246 15,101

——— ——— ——— ——— ——— ——— ———

Accumulated Depreciation:

1 January 2008 - (210) (61) (48) (22) - (341)

Depreciation - (431) (238) (278) (84) - (1,031)

Disposals - - - - 1 - 1

——— ——— ——— ——— ——— ——— ———

Total Depreciation - (641) (299) (326) (105) - (1,371)

——— ——— ——— ——— ——— ——— ———

Net carrying value at 31 December 2008

7,000 2,882 1,090 2,276 236 246 13,730

===== ===== ===== ===== ===== ===== =====

Net carrying value at 31 December 2007

- 2,292 275 810 123 1,137 4,637

===== ===== ===== ===== ===== ===== =====

Net carrying value at 31 December 2008 – USD’000

18,182 7,486 2,831 5,912 613 639 35,662

===== ===== ===== ===== ===== ===== =====

Net carrying value at 31 December 2007 – USD’000

- 5,953 714 2,104 319 2,953 12,044

===== ===== ===== ===== ===== ===== =====

* Bank Sohar has received three plots of land as grant from the Government of Sultanate of Oman, one plot is in Sohar and two plots are in Muscat region. The Bank has recorded the land based on the average valuation of the two professional valuators. The valuation was conducted on an estimated market value basis assuming a willing buyer and seller acting prudently, knowledgeably and assuming the price is not affected by extraneous circumstances. An amount equivalent to the value of the land has also been recorded as deferred income and disclosed as a separate liability.

B6 Other Assets

31 December 31 December 31 December 31 December

2007 2008 2008 2007

USD’000 USD’000 RO’000 RO’000

5,779 7,952 Interest receivable 3,062 2,225

1,403 1,322 Prepayments and deposits 509 540

3,680 1,956 Acceptances 753 1,417

21 1,795 Fair value receivables – forward exchange contracts 691 8

- 969 Deferred tax asset (Note C7) 373 -

618 1,590 Others 612 238

——— ——— ——— ———

11,501 15,584 6,000 4,428

===== ===== ===== =====

B7 Due to Banks and Other Money Market Deposits


2007 2008 2008 2007

USD’000 USD’000 RO’000 RO’000

Local Currency:

74,286 25,974 Money market borrowings 10,000 28,600

———— ———— ———— ————

74,286 25,974 10,000 28,600

———— ———— ———— ————

Foreign Currency:

- 208,400 Money market borrowings 80,234 -

36 - Nostro credit balances - 14

———— ———— ———— ————

36 208,400 80,234 14

———— ———— ———— ————

74,322 234,374 Total 90,234 28,614

======= ======= ======= =======

B8 Certificates of DepositThe Bank had received approval from Central Bank of Oman to issue Certificates of Deposits (CDs) up to RO 100 million in 2007, which expired on 31 December 2007. The CD was denominated in Rial Omani with a maturity ranging from 2-5 years and with a fixed rate of inter-est. A fresh approval was obtained from Central Bank of Oman to raise CDs up to RO 200 million during the year 2008. The CDs are to be denominated in Rial Omani and US Dollars. The approval was valid up to 31 December 2008.



62 63

B9 Customers’ Deposits


2007 2008 2008 2007

USD’000 USD’000 RO’000 RO’000

31,239 86,138 Current deposits 33,163 12,027

56,961 60,039 Call deposits 23,115 21,930

67,777 191,351 Savings deposits 73,670 26,094

474,313 1,084,036 Term deposits 417,354 182,611

416 1,587 Margin accounts 611 160 ———— ———— ———— ————

630,706 1,423,151 547,913 242,822

======= ======= ======= =======

Retail customers:


67,777 191,351 Saving deposits 73,670 26,094

Corporate customers:

474,313 1,084,036 Term deposits 417,354 182,611


56,961 60,039 Call deposits 23,115 21,930

416 1,587 Others 611 160 ———— ———— ———— ————

630,706 1,423,151 547,913 242,822

======= ======= ======= =======

B10 Deferred Income


2007 2008 2008 2007

USD’000 USD’000 RO’000 RO’000

-18,182

Deferred income on grants received from the Government in the form of freehold land 7,000 -

———— ———— ———— ————

- 18,182 7,000 -======= ======= ======= =======

B11 Other Liabilities

31 December2007

USD’000

31 December2008

USD’000

31 December 2008

RO’000

31 December 2007

RO’000

8,218 15,722 Interest payable 6,053 3,164

1,423 2,400 Staff entitlements 924 548

3,681 1,956 Acceptances 753 1,417

34 3 Accounts payable in suspense 1 13

- 239 Fair value payables – forward exchange contracts 92 -

8,806 8,711 Other accruals and provisions 3,354 3,390 ———— ———— ———— ————

22,162 29,031 11,177 8,532 ======= ======= ======= =======

Staff entitlements are as follows:

68 210 End of service benefits 81 26

1,355 2,190 Other liabilities 843 522 ———— ———— ———— ————

1,423 2,400 924 548 ======= ======= ======= =======

Movements in the end of service benefits liability are as follows:

- 68 Liability as at 1 January 26 -

68 145 Expenses recognized in the income statement 56 26

- (3) End of service benefits paid (1) - ———— ———— ———— ————

68 210 Liability as at end of the year 81 26 ======= ======= ======= =======

B12 Share CapitalThe authorised, issued and paid up share capital of the Bank is 1,000,000,000 shares of RO 0.100 each.

The Bank issued 100,000,000 shares of RO 1 each to the public in December 2006. An amount of RO 0.500 with the issue expenses of RO 0.020 was payable on application. Each RO 1 share was split into 10 shares of RO 0.100 each in an extraordinary general meeting held on 26 April 2008. Consequently the balance callable amount was reduced to RO 0.050 per share. The balance RO 0.050 per share was called upon to be paid by the shareholders on 10 May’08. The Bank has received the call money on the issued shares.

As of 31 December 2008, the following shareholders held 10% or more of the Bank’s capital, either individually or together with family members.

Number of shares % Holding

Al Ghadeer Al Arabiyah LLC 160,000,000 16.00%

Royal Court of Affairs 145,690,340 14.57%



64 65

B13 Legal ReserveIn accordance with the Commercial Companies Law of Oman of 1974, an annual appropriation of 10% of the net profit for the year is required to be made to legal reserve until such time that the accumulated reserve is equal to at least one third of the Bank’s issued share capital which has been complied with. The legal reserve also include issue expenses of RO 0.020 per share which were collected from the shareholders of the Bank net of issue expenses. The movement in the reserve has been disclosed in the statement of changes in equity.

B14 Fair Value LossesThe fair value losses include the cumulative net change in the fair value of the available-for-sale investments until the investment is derecognised or impaired.

B15 Net Assets Per ShareThe calculation of net assets per share is based on net assets of RO 96,487,000 as at 31 December 2008 attributable to ordinary sharehold-ers on 1,000,000,000 ordinary shares, being the number of shares outstanding as at 31 December 2008 (RO 49,274,000 as at 31 December 2007).

B16 Contingent Liabilities and Committments

B16.1 Contingent Liabilities

Standby letters of credit and guarantees commit the Bank to make payments on behalf of customers’ contingent upon the failure of the cus-tomer to perform under the terms of the contract.


2007 2008 2008 2007

USD’000 USD’000 RO’000 RO’000

31,145 131,901 Guarantees 50,782 11,991

38,798 44,909 Documentary letters of credit 17,290 14,937 --------------- --------------- --------------- ---------------

69,943 176,810 68,072 26,928======== ======== ======== ========

The table below analyses the concentration of contingent liabilities by economic sector:

31 December2007

USD’000

31 December2008

USD’000

31 December2008

RO’000

31 December2007

RO’000

22,379 19,958 Government 7,684 8,616

20,753 63,621 Construction 24,494 7,990

2,042 24,353 Import trade 9,376 786

2,595 216 Export trade 83 999

7,751 4,143 Manufacturing 1,595 2,984

11,935 3,761 Transport and communication 1,448 4,595

275 52,491 Services 20,209 106

2,213 8,267 Others 3,183 852 --------------- --------------- --------------- ---------------

69,943 176,810 68,072 26,928======== ======== ======== ========

B16 CONTINGENT LIABILITIES AND COMMITTMENTS (continued)

B16.2 Commitments

Contractual obligation including contracts for purchase and sale of foreign exchange are stated at fair value as commitments. Credit related commitments include commitments to extend credit, standby letters of credit and guarantees, which are designed to meet the requirements of the Bank’s customers. Commitments to extend credit represent contractual commitments to make loans and revolving credits. Commitments generally have fixed expiry dates or other termination clauses and require the payment of a fee. Since commitments may expire without being drawn upon, the total contract amounts do not necessarily represent future cash requirements.


2007 2008 2008 2007

USD’000 USD’000 RO’000 RO’000

561 2,273 Capital commitments 875 216

140,249 431,524 Credit related commitments 166,137 53,996 --------------- --------------- --------------- ---------------

140,810 433,797 167,012 54,212======== ======== ======== ========

B17 Related Party TransactionsIn the ordinary course of business the Bank conducts transactions with certain of its directors, shareholders, senior management and companies in which they have a significant interest. These transactions are conducted on an arms length basis and are approved by the Bank’s management.

No specific provision has been recognised in respect of the loans given to related parties.

The aggregate amount of balances and the income and expenses generated with such related parties are as follows:


2007 2008 2008 2007

USD’000 USD’000 RO’000 RO’000

A) Loans and Advances

- 17,426 Opening Balance 6,709 -

37,621 85,800 Loans issued during the year 33,033 14,484

(20,195) (64,810) Loans repayment during the year (24,952) (7,775) ---------------- ---------------- ---------------- ---------------- 17,426 38,416 Closing balances for the year 14,790 6,709 ======== ======== ======== ========

B) Deposits

- 42,564 Opening Balance 16,387 -

167,421 410,600 Deposits received during the year 158,081 64,457

(124,857) (398,979) Deposits repaid during the year (153,607) (48,070) ---------------- ---------------- ---------------- ---------------- 42,564 54,185 Closing balances for the year 20,861 16,387 ======== ======== ======== ========

C) Income Statement

262 1,439 Interest income 554 101

(813) (3,629) Interest expense (1,397) (313) ======== ======== ======== ========

D) Senior Management compensation

2,732 3,878 Salaries and other short term benefits 1,493 1,052 ======== ======== ======== ========

161 169 E) Directors sitting fees 65 62



66 67

======== ======== ======== ========B18 Fair Value of Financial InstrumentsIt is the Bank’s intention to hold loans and advances to customers to maturity. As a result the fair value of performing loans is arrived at using the discounted cash flow analysis based on a discount rate equal to the prevailing market rates of interest for loans having similar terms and conditions. The Bank considers that the fair value of financial instruments is not significantly different to their carrying value at each of those dates.

The table below sets out the classification of each class of financial assets and liabilities, and their fair values (excluding accrued interest) as at 31 December 2008:

As at 31 December 2008Cash

RO’000

Loans and receivables

RO’000

Amortisedcost

RO’000

Available for saleRO’000

Total carrying amountRO’000

Fair valueRO’000

Cash and balances with Central Bank 4,005 89,907 - - 93,912 93,912

Due from banks and other money market placements - 69,216 - - 69,216 69,216

Loans and advances - 634,265 - - 634,265 634,265

Investments - - - 25,788 25,788 25,788 -------------- -------------- -------------- -------------- -------------- --------------

Total 4,005 793,388 - 25,788 823,181 823,181 ======= ======= ======= ======= ======= =======

Due to banks and other money market deposits - - 90,234 - 90,234 90,234

Certificates of deposit - - 90,100 - 90,100 90,100

Customers’ deposits - - 547,913 - 547,913 547,913 -------------- -------------- -------------- -------------- -------------- --------------

Total - - 728,247 - 728,247 728,247 ======= ======= ======= ======= ======= =======

As at 31 December 2007 CashLoans and receivables

Amortisedcost

Available for sale

Total carrying amount Fair value

RO’000 RO’000 RO’000 RO’000q RO’000 RO’000


Due from Banks and other money market placements - 36,914 - - 36,914 36,914


Investments - - - 55,000 55,000 55,000-------------- -------------- -------------- -------------- -------------- --------------

Total 1,296 354,981 - 55,000 411,277 411,277======= ======= ======= ======= ======= =======

Due to Banks and other money market deposits - - 28,614 - 28,614 28,614


Customers’ deposits - - 242,822 - 242,822 242,822-------------- -------------- -------------- -------------- -------------- --------------

Total - - 362,536 - 362,536 362,536======= ======= ======= ======= ======= =======

B18 Fair Value of Financial Instruments (continued)

As at 31 December 2008Cash

USD’000

Loans and receivables

USD’000

Amortised cost

USD’000

Availablefor sale

USD’000

Total carrying amount

USD’000Fair valueUSD’000


Due from banks and other money market placements - 179,782 - - 179,782 179,782

Loans and advances - 1,647,442 - - 1,647,442 1,647,442

Investments - - - 66,982 66,982 66,982

-------------- -------------- -------------- -------------- -------------- --------------

Total 10,403 2,060,748 - 66,982 2,138,133 2,138,133

======= ======= ======= ======= ======= =======

Due to banks and other money market deposits - - 234,374 - 234,374 234,374


Customers’ deposits - - 1,423,151 - 1,423,151 1,423,151

-------------- -------------- -------------- -------------- -------------- --------------

Total - - 1,891,551 - 1,891,551 1,891,551

======= ======= ======= ======= ======= =======

As at 31 December 2007 CashLoans and

receivablesAmortised

costAvailable

for saleTotal carrying

amount Fair value

USD’000 USD’000 USD’000 USD’000 USD’000 USD’000


Due from Banks and other moneymarket placements - 95,881 - - 95,881 95,881


Investments - - - 142,857 142,857 142,857

-------------- -------------- -------------- -------------- -------------- --------------

Total 3,366 922,029 - 142,857 1,068,252 1,068,252

======= ======= ======= ======= ======= =======

Due to Banks and other money market deposits - - 74,322 - 74,322 74,322


Customers’ deposits - - 630,706 - 630,706 630,706

-------------- -------------- -------------- -------------- -------------- --------------

Total - - 941,651 - 941,651 941,651



68 69

======= ======= ======= ======= ======= =======B19 DerivativesIn the ordinary course of business the Bank enters into various types of transactions that involve derivative financial instruments. A derivative financial instrument is a financial contract between two parties where payments are dependent upon movements in price in one or more underlying financial instrument, reference rate or index. The derivative financial instruments used by the Bank are described below:

B19.1 Derivative product types

Forwards are contractual agreements to either buy or sell a specified currency, commodity or financial instrument at a specific price and date in the future.

Swaps are contractual agreements between two parties to exchange interest or foreign currency differentials based on a specific notional amount. For interest rate swaps, counter parties generally exchange fixed and floating rate interest payments based on a notional value in a single currency.

Options are contractual agreements that convey the right, but not the obligation, to either buy or sell a specific amount of a commodity, foreign currency or financial instrument at a fixed price, either at a fixed future date or at any time within a specified period. The Bank transacts only in currency options for its customers. The Bank does not engage in the writing of options.

B19.2 Derivatives held or issued for hedging purposes

As part of its asset and liability management the Bank uses derivatives for hedging purposes in order to reduce its exposure to currency and interest rate risks. Hedging specific financial instruments and forecasted transactions as well as strategic hedging against overall balance sheet exposures achieve this. The Bank uses forward foreign exchange contracts, options and currency swaps to hedge against specifically identified currency risks. The Bank uses forward foreign exchange contracts to hedge against exposures in various currencies to meet the net open position limit of 40% as mandated by the Central Bank of Oman.

In addition, the Bank uses interest rate swaps to hedge against the cash flow risks arising from certain fixed interest rate loans and deposits. For interest rate risk strategic hedging is carried out by monitoring the re-pricing of financial assets and liabilities and entering into interest rate swaps to hedge a proportion of the interest rate exposure. As strategic hedging does not qualify for special hedge accounting, the related

derivatives are accounted for as trading instruments. B19.2 Derivatives held or issued for hedging purposes (continued)

The table below shows the notional amounts of derivative financial instruments as on the reporting date, which are the amount of a deriva-tive’s underlying asset, reference rate or index and is the basis upon which changes in the value of derivatives are measured.


Notional amounts by term to maturity

Notional amount

Within 3 months 3 - 12 months 1 - 5 years

RO’000 RO’000 RO’000 RO’000

Forward foreign exchange purchase contracts 33,935 30,120 3,815 -

======== ======== ======== ========

Forward foreign exchange sales contracts 56,446 29,526 26,920 -

======== ======== ======== ========

USD’000 USD’000 USD’000 USD’000


======== ======== ======== ========

Forward foreign exchange sales contracts 146,613 76,691 69,922 -

======== ======== ======== ========


Notional amounts by term to maturity

Notional amount

Within 3 months 3 - 12 months 1 - 5 years

RO’000 RO’000 RO’000 RO’000


======== ======== ======== ========

Forward foreign exchange sales contracts 33,328 2,116 8,112 23,100

======== ======== ======== ========

USD’000 USD’000 USD’000 USD’000


======== ======== ======== ========

Forward foreign exchange sales contracts 86,566 5,496 21,070 60,000



70 71

======== ======== ======== ========C1 Interest Income

From 9 April 2007

From 9 April2007

Up to31 December

200731 December

200831 December

2008

Up to31 December

2007

USD’000 USD’000 RO’000 RO’000

2,436 3,730 Due from Banks 1,436 938

19,232 79,724 Loans and advances to customers 30,694 7,404

2,626 2,286 Investment securities 880 1,011

--------------- --------------- --------------- ---------------

24,294 85,740 33,010 9,353

======== ======== ======== ========

C2 Interest Expense

From 9 April 2007

From 9 April2007

Up to31 December

200731 December

200831 December

2008

Up to31 December

2007

USD’000 USD’000 RO’000 RO’000

1,364 7,356 Deposits from Banks 2,832 525

13,278 50,309 Deposits from customers 19,369 5,112

--------------- --------------- --------------- ---------------

14,642 57,665 22,201 5,637

======== ======== ======== ========

C3 Other Operating Income

From 9 April 2007

From 9 April2007

Up to31 December

200731 December

200831 December

2008

Up to31 December

2007

USD’000 USD’000 RO’000 RO’000

81 371 Net gain from foreign exchange dealings 143 31

11,919 17,351 Fees and commission 6,680 4,589

192 - Gains from financial investments through equity - 74

39 252 Realised gains on financial investments through income statement

97 15

--------------- --------------- --------------- ---------------

12,231 17,974 6,920 4,709

======== ======== ======== ========

C4 Other Operating Expenses

From 9 April2007

From 9 April2007

Up to31 December

200731 December

200831 December

2008

Up to31 December

2007

USD’000 USD’000 RO’000 RO’000

834 2,488 Establishment costs 958 321

4,922 9,008 Operating and administration costs 3,468 1,895

130 169 Directors sitting fees 65 50

———— ———— ————— —————

5,886 11,665 4,491 2,266

======= ======= ======= =======

C5 Net Pre-Incorporation Expenses

For the periodended on 3 March

200731 December

200831 December

2008

For the periodended on 3 March

2007

USD’000 USD’000 RO’000 RO’000

221 - Establishment costs - 85

2,099 - Operating and administration costs - 808

569 - Staff cost - 219

————— ————— ————— —————

2,889 - - 1,112

(1,114) - Less: Interest income - (429)

————— ————— ————— —————

1,775 - - 683



72 73

======= ======= ======= =======

C6 Net Pre-Operating Expenses

For the period from 4 March 2007

to 8 April 200731 December

200831 December

2008

For the period from 4 March 2007

to 8 April 2007

USD’000 USD’000 RO’000 RO’000

57 - Establishment costs - 22

384 - Operating and administration costs - 148

545 - Staff cost - 210

8 - Depreciation - 3

————— ————— ————— —————

994 - - 383

(309) - Less: Interest income - (119)

————— ————— ————— —————

685 - - 264

======== ======== ======== ========

C7 Deferred Tax IncomeThe Bank is liable to income tax for the year 2008 in accordance with the income tax laws of the Sultanate of Oman at the rate of 12% on taxable profits in excess of RO 30,000. The following is a reconciliation of income taxes calculated at the applicable tax rate with the income tax expense:


2007 2008 2008 2007

USD’000 USD’000 RO’000 RO’000

(6,458) (6,850) Accounting loss for the year (2,637) (2,486)

======== ======== ======== ========

- (673) Non deductible expenses (259) -

- 23 Tax exempt revenue 9 -

- 797Previously unrecognized tax losses now recognized 307 -

- 821 Effect of tax losses of current year 316 -

————— ————— ————— —————

- 968 Deferred tax income 373 -

======== ======== ======== ========

The deferred tax asset comprises the following temporary differences:


2007 2008 2008 2007

USD’000 USD’000 RO’000 RO’000

- 891 Tax losses 343 -

- 78 Fair value adjustment on unquoted investments 30 -

————— ————— ————— —————

- 969 373 -

======== ======== ======== ========

C8 Basic Earnings/(Loss) Per ShareEarnings/(loss) per share is calculated by dividing the net profit/(loss) for the year by the weighted average number of shares outstanding during the year.

From 9 April 2007

From 9 April2007

up to31 December

200731 December

200831 December

2008

up to31 December

2007

USD’000 USD’000 RO’000 RO’000

(6,457) (5,881) Net profit/(loss) for the year (2,264) (2,486)

----------------- ----------------- ----------------- -----------------

1,000,000 1,000,000 Weighted average number of shares of RO 0.100 each outstanding during the year (in thousands) ** 1,000,000 1,000,000

----------------- ----------------- ----------------- -----------------

(6.457) (5.881) Net earnings/(loss) per share for the year (in baizas) (2.264) (2.486)

======== ======== ======== ========

(7.945) (5.881) Net earnings/(loss) per share for the year (annualised - in baizas) (2.264) (3.059)

======== ======== ======== ======== No figure for diluted earnings per share has been presented, as the Bank has not issued any convertible instruments, which would have an



74 75

impact on earnings per share when exercised.

** Weighted average number of shares for 2007 has been restated to that of 2008 taking into effect the split and for comparability.

D Financial Risk Management The primary objective of the risk management system is to safeguard the Bank’s capital, its financial resources from various risks. The Bank has exposure to the following risk from its use of financial instruments:

Credit risk

Liquidity risk

Market risk

Operational risk

The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s risk management framework. The Board has established the Asset and Liability Committee (ALCO), Credit and Risk Committee, which are responsible for developing and monitoring Bank’s risk management policies in their specified areas. All Board committees report regularly to the Board of Directors on their activities. The Bank’s risk management policies are established to identify and analyse the risks faced by the Bank, to set appropriate risk limits and con-trols, and to monitor risks and adherence to limits. Risk management polices and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Bank, through its training and management procedures, aims to develop a constructive control environment, in which all employees understand their roles and obligations.

The Bank Audit Committee is responsible for monitoring compliance with the Bank’s risk management policies and procedures, and for review-ing the adequacy of the risk management framework in relation to the risks faced by the Bank. The Bank Audit Committee is assisted in these functions by Internal Audit. Internal Audit undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

D1 Credit RiskCredit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obliga-tions, and arises principally from the Bank’s loans and advances to customers and other Banks and investment securities. For risk management reporting purposes the Bank considers and consolidates all elements of credit risk exposure (such as individual obligor default risk, country and sector risk).

D1.1 Management of credit risk

The Board of Directors has delegated responsibility for the monitoring of credit risk to its Credit & Risk Committee. A separate Risk Manage-ment Department, reporting to the CEO, is responsible for following:

Formulating credit risk policies in consultation with business units, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements.

Establishing the authorization structure for the approval and renewal of credit facilities.

Reviewing and assessing credit risk. The Board Credit & Risk Committee assesses all credit exposures in excess of designated limits, prior to facilities being committed to customers by the business unit concerned. Renewals and reviews of facilities are subject to the same review process. The process also includes approval by Risk of borrower ratings arrived at by the business units.

Limiting concentrations of exposure to counterparties, geographies and industries (for loans and advances), and by issuer, market liquidity and country (for investment securities).

Developing and maintaining the Bank’s risk grading in order to categorise exposures according to the degree of risk of financial loss faced and to focus management on the attendant risks.

Reviewing compliance of business units with agreed exposure limits, including those for selected industries, country risk and product types. Ensuring always to be within the single obligor limit and also within the concentration risk limit, for various sectors, which are continuously monitored.

Providing advice, guidance and specialist skills to business units to promote best practice throughout the Bank in the management of credit risk.

Each business unit is required to implement Bank’s credit risk policies and procedures, with credit approval authorities delegated from the Bank’s Credit & Risk Committee. Business units have their counter parts in Risk Management, having specialised expertise in managing risks typical to these business units. Regular audits of business units and Bank’s Credit processes are undertaken by Internal Audit.



76 77

D Financial Risk Management (continued)

D1 Credit Risk (continued)

D1.2 Exposure to credit

The credit exposure of the Bank as on the reporting date is as follows:

31 December 2008 31 December 2007

Gross Loans and advances to

CustomersPlacements with Banks

Investment securities


CustomersPlacements with Banks


RO’000 RO’000 RO’000 RO’000 RO’000 RO’000

Carrying amount 644,101 69,216 25,788 303,339 36,914 55,000

======== ======== ======== ======== ======== ========

Past due but not impaired

0 -30 days 9,892 - - 254 - -

31-60 days 2,531 - - - - -

61-89 days 173 - - - - -

———— ———— ———— ———— ———— ————

12,596 - - 254 - -

———— ———— ———— ———— ———— ————

Past due and impaired 772 - - - - -

———— ———— ———— ———— ———— ————

Neither past due nor impaired 630,733 69,216 25,788 303,085 36,914 55,000

======== ======== ======== ======== ======== ========



CustomersPlacementswith Banks


Gross Loansand advances to

CustomersPlacementswith Banks



Carrying amount 1,672,990 179,782 66,982 787,894 95,881 142,857

======== ======== ======== ======== ======== ========

Past due but not impaired

0 -30 days 25,694 - - 660 - -

31-60 days 6,574 - - - - -

61-89 days 449 - - - - -

———— ———— ———— ———— ———— ————

32,717 - - 660 - -

———— ———— ———— ———— ———— ————

Past due and impaired 2,005 - - - - -

———— ———— ———— ———— ———— ————

Neither past due nor impaired 1,638,268 179,782 66,982 787,234 95,881 142,857

======== ======== ======== ======== ======== ========D Financial Risk Management (continued)

D1.3 Impaired Loans and securities

Impaired loans and securities are loans and securities for which the Bank determines that it is probable that it will be unable to collect all the principal and interest due according to the contractual terms of the loan /securities agreement.

D1.3.a Past due but not impaired

Loans and securities where contractual interest or principal payments are past due but the Bank believes that impairment is not appropriate on the basis of the level of security /collateral available and /or the stage of collection of amounts owed by the Bank.

D1.3.b Loans with negotiated terms

Loans with negotiated terms are loans that have been restructured due to deterioration in the borrower’s financial position and where the Bank has made concessions that it would not otherwise consider. Once the loan is restructured it remains in this category independent of satisfactory performance after restructuring.

D1.3.c Allowances for impairment

The Bank establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main com-ponents of this allowance are specific loss components that relates to individually significant exposures, and a collection loan loss allowance established for Banks of homogenous assets in respect of losses that have been incurred but have not been identified on loans subject to individual assessment for impairment.

D1.3.d Write off policy

The Bank writes off a loan /security balance (and any related allowances for impairment losses) when the Bank determines that the loans/securities are uncollectible. This determination is reached after considering information such as the occurrence of significant changes in the borrower /issuer’s financial position such that the borrower issuer can no longer pay the obligation, or that proceeds from the collateral will not be sufficient to pay back the entire exposure. For smaller balance standardized loans, charge off decisions generally are based on a product specific past due status.

Set out below is an analysis of gross and net (of allowances for impairment) amounts of individually impaired assets by risk classification.


Loans and Advances Loans and Advances

Particulars Gross Net Gross Net

RO’000 RO’000 RO’000 RO’000

Sub-standard 415 302 - -

Doubtful 341 196 - -

Loss 16 - - -

———— ———— ———— ————

772 498 - -

======= ======= ======= =======

USD’000 USD’000 USD’000 USD’000

Sub-standard 1,078 785 - -

Doubtful 886 509 - -

Loss 42 - - -

———— ———— ———— ————

2,006 1,294 - -



78 79

======= ======= ======= =======D FINANCIAL RISK MANAGEMENT (continued)

D1 CREDIT RISK (continued)

D 1.4 Collateral securities

The Bank holds collateral against the loans and advances to customers in the form of mortgage interests over property, other registered securi-ties over assets, and guarantees. Estimates of fair value are based on the value of the collateral assessed at the time of borrowing and updated once in three years, except when a loan is individually assessed as impaired. The shares of MSM listed companies which are taken as securities are valued on daily basis to manage the risks of extreme volatility.

An estimate of the fair value of collateral and other security enhancements held against financial assets is shown below:

31 December2007

31 December2008

31 December 2008

31 December2007

Gross loans and advances




USD’000 USD’000 RO’000 RO’000

Against past due but not impaired

1,005 22,234 Property 8,560 387

26 1,782 Fixed deposits 686 10

- 608 Equity 234 -

————— ————— ————— —————

1,031 24,624 9,480 397

————— ————— ————— —————

Against past due and impaired

- 423 Property 163 -

————— ————— ————— —————

- 423 163 397

————— ————— ————— —————

Against neither past due nor impaired

187,156 301,842 Property 116,209 72,055

14,660 14,974 Fixed deposits 5,765 5,644

26,244 56,574 Equity 21,781 10,104

- 36,026 Guarantees 13,870 -

————— ————— ————— —————

228,060 409,416 157,625 87,803

————— ————— ————— —————

229,091 434,463 Total 167,268 88,200

========= ========= ========= =========

D1.5 Settlement Risk

Settlement risk is the risk of loss due to the failure of a company to honour its obligations to deliver cash, securities or other assets as contractually agreed on the day of settlement.

In foreign exchange trades, though there is fulfilment of both the legs of the transaction on the settlement date as is common practice be-tween trading partners ( free settlement ), there will be risk on account of different time zones. In these cases, the settlement risk is mitigated through the execution of bilateral payment netting agreements.D1.6 Concentrations

The Bank monitors concentration of credit risk by sector and by geographic location. An analysis of concentration of credit risk at the reporting date is shown below:



to customersRO’000

Placements with Bank

RO’000


RO’000

Gross loans and advances to customers

RO’000

Placements with Bank

RO’000


RO’000

Concentration by sector

Corporate 330,684 - 3,134 166,439 - -

Personal 313,417 - - 136,900 - -

Sovereign - - 22,654 - - 55,000

Banks - 69,216 - - 36,914 -————— ————— ————— ———— ———— ————

644,101 69,216 25,788 303,339 36,914 55,000======== ======== ======== ======== ======== ========

Concentration by location

Middle east 639,866 63,137 16,632 298,168 30,031 55,000

Europe - 569 8,414 - 266 -

North America - 1,454 742 - 6,610 -

South Asia 2,310 4,022 - 4,760 - -

Australia - 33 - - - -

Central Asia 1,925 1 - 411 7 -————— ————— ————— ———— ———— ————

644,101 69,216 25,788 303,339 36,914 55,000======== ======== ======== ======== ======== ========


Concentration by sector

Corporate 858,919 - 8,140 432,309 - -Personal 814,071 - - 355,584 - -Sovereign - - 58,842 - - 142,857Banks - 179,782 - - 95,881 -

————— ————— ————— ———— ———— ————1,672,990 179,782 66,982 787,893 95,881 142,857

======== ======== ======== ======== ======== ========Concentration by location

Middle east 1,661,990 163,991 43,200 774,461 78,003 142,857Europe - 1,478 21,855 - 691 -North America - 3,777 1,927 - 17,169 -South Asia 6,000 10,447 - 12,364 - -Australia - 86 - - - -Central Asia 5,000 3 - 1,068 18 -

————— ————— ————— ———— ———— ————1,672,990 179,782 66,982 787,893 95,881 142,857



80 81

======== ======== ======== ======== ======== ========

Concentration by location for loans and advances is measured based on the location of the Bank entity holding the asset, which has a high correlation with the location of the borrower. Concentration by location for investment securities is measured based on the location of the issuer of the security.

The Bank seeks to manage its credit risk exposure through diversification of lending activities to avoid undue concentrations of risk with Banks or customers in specific currency. It also obtains security when appropriate.

D FINANCIAL RISK MANAGEMENT (continued)

D2 LIQUIDITY RISK

Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations from its financial obligations.

D2.1 Management of liquidity risk

The Banks approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions without incurring unacceptable losses or risking damage to the Banks reputation.

Liquidity risk is managed by the bank through closely monitoring the liquidity gap against the limit fixed.

Adequate liquidity is ensured by Central Treasury, which receives information from other business units regarding the liquidity profile of their financial assets and liabilities and details of other projected cash flows arising from projected future business. Central Treasury then maintains a portfolio of short-term liquid assets, largely made up of short-term liquid investment securities, loans and advances to Banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Bank as a whole. In this process due care is taken to ensure that the Bank complies with all the Central Bank regulations.

All liquidity policies and procedures are subject to review and approved by ALCO.

D2.2 Exposure to liquidity risk

The lending ratio, which is the ratio of the total loans and advances to customer deposits and capital, is monitored on a daily basis in line with the regulatory guidelines. Internally the lending ratio is set at a more conservative basis than required by regulation. The Bank also manages its liquidity risk on a monthly basis monitoring the liquid ratio which is a ratio of net liquid assets to total assets. For this purpose net liquid assets are considered as including cash and cash equivalents and investment grade debt securities for which there is an active and liquid market.

Details of the reported lending and liquid ratio as at 31 December 2008 were as follows:


Lending ratio Liquid ratio Lending ratio Liquid ratio

Average for the year 81.67% 21.37% 73.25% 40.11%

Maximum for the year 85.20% 33.17% 87.50% 86.12%

Minimum for the year 73.00% 16.59% - 26.73%

Residual contractual maturities of financial liabilities

The table below summarises the maturity profile of the Bank’s liabilities as on the reporting date based on contractual repayment arrange-ments. The contractual maturities of assets and liabilities have been determined on the basis of the remaining period at the balance sheet date to the contractual maturity date and do not take account of the effective maturities as indicated by the Bank’s deposit retention history and the availability of liquid funds.


D2 LIQUIDITY RISK (continued)

D2.2 Exposure to liquidity risk (continued)

As at 31 December 2008:

Carrying amount

Gross Nominal Outflow

Within 3 months

3 - 12 months Over 1 year

RO’000 RO’000 RO’000 RO’000 RO’000

Non-derivative liabilitiesDue to banks and other money market deposits 90,234 91,630 83,554 1,662 6,414 Certificates of deposits 90,100 96,829 144 59,076 37,609 Customers’ deposits 547,913 568,121 341,362 139,313 87,446 Deferred income 7,000 7,000 - - 7,000 Other liabilities 11,177 11,177 11,177 - -

———— ———— ———— ———— ————Total 746,424 774,757 436,237 200,051 138,469

======= ======= ======= ======= =======USD’000 USD’000 USD’000 USD’000 USD’000

Non-derivative liabilitiesDue to banks and other money market deposits 234,374 238,000 217,023 4,317 16,660 Certificates of deposits 234,026 251,504 374 153,444 97,686 Customers’ deposits 1,423,151 1,475,639 886,655 361,852 227,132 Deferred income 18,182 18,182 - - 18,182 Other liabilities 29,031 29,031 29,031 - -

———— ———— ———— ———— ————Total 1,938,764 2,012,356 1,133,083 519,613 359,660

======= ======= ======= ======= =======

As at 31 December 2007:

RO’000 RO’000 RO’000 RO’000 RO’000Non-derivative liabilitiesDue to banks and other money market deposits 28,614 29,469 8,354 19,548 1,567Certificates of deposits 91,100 102,868 579 4,408 97,881Customers’ deposits 242,822 251,883 111,869 108,091 31,923Deferred income - - - - -Other liabilities 8,532 8,532 8,532 - -

———— ———— ———— ———— ————

Total 371,068 392,752 129,334 132,047 131,371====== ====== ====== ====== ======

USD’000 USD’000 USD’000 USD’000 USD’000



82 83

Non-derivative liabilities

Due to banks and other money market deposits 74,322 76,543 21,699 50,774 4,070

Certificates of deposits 236,623 267,190 1,504 11,449 254,236

Customers’ deposits 630,706 654,242 290,569 280,756 82,917

Deferred income - - - - -

Other liabilities 22,161 22,161 22,161 - -———— ———— ———— ———— ————

Total 963,812 1,020,136 335,933 342,979 341,223====== ====== ====== ====== ======

The Bank prepares a liquidity gap report to monitor the Banks short term liquidity position on the Rial denominated assets and liabilities in a time horizon spanning one month. The gap is adjusted for availability of instruments for repo or refinance and also for unavailed committed lines of credit, if any. This Statement of short term liquidity is to be reported to the ALCO every month and onward reported to Credit & Risk Committee.D FINANCIAL RISK MANAGEMENT (continued)

D3 MARKET RISKMarket risk is the exposure to loss resulting from the changes in the interest rates, foreign currency exchange rates, equity prices and com-modity prices. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return to risk.

D3.1 Measurement of market risk

The Bank commenced its operations in April 2007 and is presently engaged in simple treasury business involving Spots, Forwards and Currency swaps. Since the positions are taken mainly for customer transactions, the complexity is further reduced. In view of above, the Bank measures and controls the risk by using a limit framework. As and when the Bank enters into complex transactions like derivatives, it will have more sophisticated models and techniques to measure market risk, supported by suitable mechanism.

D3.2 Management of market risks

The Bank separates its exposure to market risk between trading and non trading portfolios. Trading portfolios include all positions arising from market making and proprietary position taking, together with financial assets and liabilities that are managed on a fair value basis.

All foreign exchange risk within the Bank is transferred by Central Treasury to the trading book. Accordingly, the foreign exchange position is treated as a part of the Banks trading portfolio for risk management purpose.

Overall authority for market risk is vested in ALCO. The Risk Management function is responsible for development of detailed risk management policies (subject to approval by ALCO and Credit & Risk Committee of the Board).The Market Risk Policy is periodically reviewed to keep it up to date with the market developments.

D3.3 Exposure to interest rate risk – non trading portfolios

Interest rate risk arises from the possibility that changes in interest rates will affect future profitability or the fair values of financial instruments. The Bank is exposed to interest rate risk as a result of mismatches of interest rate and re-pricing tenure of rate sensitive assets and liabilities.

The effective interest rate (effective yield) of a monetary financial instrument is the rate used in a present value calculation which results in the carrying amount of the instrument. The rate is a historical rate for a fixed rate instrument carried at amortised cost and a current rate for a floating rate instrument or an instrument carried at fair value.

The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instrument because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for re-pricing bands. The ALCO is the monitoring body for compliance with these limits and is assisted by Risk Management in its day-to-day monitoring activities. A summary of the Bank’s interest rate gap position on non-trading portfolios is provided in note D3.3.D FINANCIAL RISK MANAGEMENT (continued)

D3 MARKET RISK (continued)

D3.3 Exposure to interest rate risk – non trading portfolios (continued)

The Bank’s interest sensitivity position based on contractual re-pricing arrangements at 31 December 2008 was as follows:

On demand

within 3 months 3 to 12 months Over 1 year

Non interest

sensitive Total

RO’000 RO’000 RO’000 RO’000 RO’000

Cash and balances with Central Bank - - - 93,912 93,912

Due from Banks and other money market placements 69,216 - - - 69,216

Loans and advances 168,505 33,062 441,762 498 643,827

Available-for-sale investments 8,935 - 16,853 - 25,788

Property and equipment - - - 13,730 13,730

Other assets - - - 6,000 6,000 ------------------ ------------------ ------------------ ------------------ ------------------

Total assets 246,656 33,062 458,615 114,140 852,473----------------- ------------------ ------------------ ------------------ ------------------

Due to Banks and other money market deposits 82,634 7,600 - - 90,234

Certificates of deposit - 58,100 32,000 - 90,100

Customers’ deposits 207,980 131,902 78,083 129,948 547,913

Deferred Income - - - 7,000 7,000

Other liabilities - - - 11,177 11,177

Impairment allowance on portfolio basis - - - 9,562 9,562

Shareholders’ equity - - - 96,487 96,487 ------------------ ------------------ ------------------ ------------------ ------------------

Total liabilities and shareholders’ equity 290,614 197,602 110,083 254,174 852,473 ------------------ ------------------ ------------------ ------------------ ------------------

Total interest rate sensitivity gap (43,958) (164,540) 348,532 (140,034) - ------------------ ------------------ ------------------ ------------------ ------------------

Cumulative interest rate sensitivity gap (43,958) (208,498) 140,034 - - ========= ========= ========= ========= =========

USD’000 USD’000 USD’000 USD’000 USD’000Cash and balances with Central Bank - - - 243,927 243,927 Due from Banks and other money market placements 179,782 - - - 179,782 Loans and advances 437,675 85,875 1,147,434 1,294 1,672,278 Available-for-sale investments 23,208 - 43,774 - 66,982 Property and equipment - - - 35,662 35,662 Other assets - - - 15,584 15,584

------------------ ------------------ ------------------ ------------------ ------------------Total assets 640,665 85,875 1,191,208 296,467 2,214,215

------------------ ------------------ ------------------ ------------------ ------------------Due to Banks and other money market deposits 214,634 19,740 - - 234,374 Certificates of deposit - 150,909 83,117 - 234,026 Customers’ deposits 540,208 342,603 202,813 337,527 1,423,151 Deferred Income - - - 18,182 18,182 Other liabilities - - - 29,031 29,031 Impairment allowance on portfolio basis - - - 24,836 24,836Shareholders’ equity - - - 250,615 250,615

------------------ ------------------ ------------------ ------------------ ------------------Total liabilities and shareholders’ equity 754,842 513,252 285,930 660,191 2,214,215

------------------ ------------------ ------------------ ------------------ ------------------Total interest rate sensitivity gap (114,177) (427,377) 905,278 (363,724) -

------------------ ------------------ ------------------ ------------------ ------------------Cumulative interest rate sensitivity gap (114,177) (541,554) 363,724 - -

========= ========= ========= ========= =========





84 85



On demand

within 3 months

3 to 12

months Over 1 year

Non interest

sensitive Total

RO’000 RO’000 RO’000 RO’000 RO’000Cash and balances with Central Bank - - - 20,427 20,427 Due from Banks and other money market placements 36,914 - - - 36,914 Loans and advances 163,291 140,048 - - 303,339 Available-for-sale investments 50,000 5,000 - - 55,000 Property, equipment and fixtures - - - 4,637 4,637 Other assets - - - 4,428 4,428

---------------- ---------------- ---------------- ---------------- ----------------Total assets 250,205 145,048 - 29,492 424,745

---------------- ---------------- ---------------- ---------------- ----------------Due to Banks and other money market deposits 8,314 18,800 1,500 - 28,614 Certificates of deposits - - 91,100 - 91,100 Customers’ deposits 38,444 114,055 30,272 60,051 242,822 Deferred income - - - - - Other liabilities - - - 8,532 8,532 Impairment allowance on portfolio basis - - - 4,403 4,403 Shareholders’ equity - - - 49,274 49,274

---------------- ---------------- ---------------- ---------------- ----------------Total liabilities and shareholders’ equity 46,758 132,855 122,872 122,260 424,745

---------------- ---------------- ---------------- ---------------- ----------------Total interest rate sensitivity gap 203,447 12,193 (122,872) (92,768) -

---------------- ---------------- ---------------- ---------------- ----------------Cumulative interest rate sensitivity gap 203,447 215,640 92,768 - -

======== ======== ======== ======== ========

USD’000 USD’000 USD’000 USD’000 USD’000Cash and balances with Central Bank - - - 53,057 53,057 Due from Banks and other money market placements 95,881 - - - 95,881 Loans and advances 424,132 363,761 - - 787,893 Available-for-sale investments 129,870 12,987 - - 142,857 Property, equipment and fixtures - - - 12,044 12,044 Other assets - - - 11,501 11,501

---------------- ---------------- ---------------- ---------------- ----------------Total assets 649,883 376,748 - 76,602 1,103,233

---------------- ---------------- ---------------- ---------------- ----------------Due to Banks and other money market deposits 21,595 48,831 3,896 - 74,322 Certificates of deposits - - 236,623 - 236,623 Customers’ deposits 99,855 296,247 78,629 155,975 630,706

Deferred income - - - - - Other liabilities - - - 22,162 22,162 Impairment allowance on portfolio basis - - - 11,436 11,436 Shareholders’ equity - - - 127,984 127,984

---------------- ---------------- ---------------- ---------------- ----------------Total liabilities and shareholders’ equity 121,450 345,078 319,148 317,557 1,103,233

---------------- ---------------- ---------------- ---------------- ----------------Total interest rate sensitivity gap 528,433 31,670 (319,148) (240,955) -

---------------- ---------------- ---------------- ---------------- ----------------Cumulative interest rate sensitivity gap 528,433 560,103 240,955 - -

======== ======== ======== ======== ========




The Bank’s present business is being done with basic products. The risk is managed by taking views on interest rate movements for the year and realigning the portfolios and covenants of lending, so as to be proactive and minimize any adverse effects. The benchmark presently available in Oman is the 28-day Central Bank of Oman CD rate. The statistics on movement of the rate in CDs and weighted average cost of deposits and the interest on loans are furnished below:

Jan 2008 Feb 2008 Mar 2008 Apr 2008 May 2008 Jun 2008 Jul 2008 Aug 2008 Sep 2008

CD Rate 1.49% 0.80% 0.75% 0.67% 0.76% 0.73% 0.76% 0.77% 0.79%

Deposit Rate 2.22% 2.09% 1.86% 1.83% 1.82% 1.81% 1.89% 1.91% 2.05%

Lending Rate 6.80% 6.51% 6.30% 6.16% 5.99% 5.83% 5.80% 5.77% 5.79%

Apr 2007 May 2007 Jun 2007 Jul 2007 Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007

CD Rate 3.63% 3.63% 3.59% 3.29% 3.15% 3.10% 2.70% 2.15% 1.95%

Deposit Rate 2.51% 2.43% 2.51% 2.52% 2.56% 2.55% 2.48% 2.42% 2.36%

Lending Rate 7.09% 7.10% 7.10% 7.10% 7.07% 7.06% 7.00% 6.94% 6.97%

The effect of adverse conditions in global financial market is expected to cause some impact on the liquidity and interest rate. An increase in interest rate can also be viewed from the increasing tendency in CD rates, average cost of deposits and lending in market from the month of August 2008.



86 87

The management of interest rate risk is one of the critical components of market risk management in banks. Interest rate risk primarily arises on account of mismatch of the Bank’s assets with its liabilities that fund the assets. There are basically two approaches to management of inter-est rate risk in banks, namely “Earnings Approach” and “Economic Value Approach”. The interest rate risk is assessed based on the impact of interest rate shock on the bank’s earnings and capital. The focus of earnings approach is understanding the impact of interest rate changes (shock) of assets and liabilities on the Net Interest Income of the Bank. It measures the extent of capability of the bank to absorb decline in net interest income caused by interest rate changes.

Interest rate risk also influences the present value of bank’s asset and liabilities. Economic value perspective considers the present value of banks assets and liabilities and assesses the potential longer term impact of interest rates on the bank. This perspective focuses on how the economic value of bank’s assets, liabilities, change with movements in interest rates and it reflects the impact of fluctuation in the interest rates on the economic value of the institution.

Basel-II Accord has recommended for assessing the impact of interest rate risk by applying 200 bps interest rate sensitivity and accordingly the impact of 200 bps interest rate shock on bank’s earnings and capital is provided.D FINANCIAL RISK MANAGEMENT (continued)



31 December 2007

31 December 2008

31 December 2008

31 December2007

USD’000 USD’000 RO’000 RO’000

9,652 28,075 Net interest income 10,809 3,716

12,870 28,075 Annualized net interest income 10,809 4,955

139,421 274,482 Capital 105,676 53,677

Based on 50 bps interest rate shock

984 764 Impact of 50 bps interest rate shock 294 379

7.65% 2.71% Impact as % to net interest income 2.71% 7.65%

0.71% 0.28% Impact as % to capital 0.28% 0.71%


1,969 1,525 Impact of 100 bps interest rate shock 587 758




3,938 3,050 Impact of 200 bps interest rate shock 1,174 1,516



D3.4 Exposure to other market risks – non-trading portfolios

Credit spread risk on debt securities held by Central Treasury and equity price risk is subject to review by the bank, but is not currently significant in relation to the overall results and financial position of the Bank.D FINANCIAL RISK MANAGEMENT (continued)


D3.5 Exposure to currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Board has set limits on the overall open position and for open position for each currency. The open position limits include overnight open position and intraday open position. Open positions are monitored on a daily basis and hedging strategies used to ensure positions are maintained within established limits. The Bank had the following net exposures denominated in foreign currencies:


Assets Liabilities Net Assets Assets Liabilities Net Assets

RO’000 RO’000 RO’000 RO’000 RO’000 RO’000

US Dollar 163,533 186,160 (22,627) 74,574 75,919 (1,345)

Saudi Rial 12,356 - 12,356 7,011 - 7,011

EUR 3,242 3,233 9 493 400 93

UAE Dirhams 4,617 115 4,502 6,549 50 6,499

Qatari Rial 586 - 586 - - -

Kuwaiti Dinar 21 - 21 - - -

Japanese Yen - - - 2,421 2,417 4

Pound Sterling 8,769 8,772 (3) 28 10 18

Indian Rupee 10 - 10 7 - 7

Others 78 - 78 73 - 73


Assets Liabilities Net Assets Assets Liabilities Net Assets


US Dollar 424,761 483,532 (58,771) 193,699 197,192 (3,493)

Saudi Rial 32,094 - 32,094 18,210 - 18,210

EUR 8,421 8,397 24 1,281 1,039 242

UAE Dirhams 11,992 299 11,693 17,010 130 16,880

Qatari Rial 1,522 - 1,522 - - -

Kuwaiti Dinar 55 - 55 - - -

Japanese Yen - - - 6,288 6,278 10

Pound Sterling 22,777 22,784 (7) 73 26 47

Indian Rupee 26 - 26 18 - 18

Others 203 - 203 190 - 190

The Bank takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are monitored daily. D FINANCIAL RISK MANAGEMENT (continued)



88 89


D3.5 Exposure to currency risk (continued)

FCY’000

% Max change in 2008change

Apply shockrate shock

+ bp change+ bp change

FCY’000Equivalent

RO’000

- bp change- bp change

FCY’000Equivalent

RO’000

SAR 120,346 2.725% +/- bp 100 121,549 12,479 119,143 12,232

-------------- --------------

12,479 12,232

======= =======

Net open position (NOP) 38.89% 38.65%

NOP of 38.77% as on 31 December 2008 is effected by the +/- bp change as shown above.

FCY’000

% Maxchange in 2008change

Apply shockrate shock

+ bp change+ bp change

FCY’000Equivalent

RO’000

- bp change- bp change

FCY’000Equivalent

RO’000

SAR 68,281 0.8597% +/- bp 100 68,964 7,081 67,598 6,941-------------- --------------

7,081 6,941======= =======

Net open position (NOP) 30.61% 30.33%

NOP of 30.47% as on 31 December 2007 is effected by the +/- bp change as shown above.

The major currency exposure in the Bank book as on 31 December 2008 is SAR and USD. Based on the movement of the currencies for the past year we observe the maximum change in the SAR rates has been 100 bp. Applying the same rate shocks to our current position we observe that the net open position would still comply within Central Bank of Oman limit of 40%. Exposures in USD and AED have not been considered for sensitivity as the currencies have been pegged to USD and no changes have been observed in the past years. The exposure in

other currencies are not material to cause major changes in NOP.

D4 OPERATIONAL RISKOperational risk is defined as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational Risk arises due to variety of causes associated with the bank’s processes, personnel, technology and infra-structure and from external events and to include risks other than credit, market and liquidity risks.

Bank’s objective is to manage operational risk to avoid /reduce financial losses to the bank by establishment of necessary controls, systems and procedures. Bank recognises that over controlled environment will affect bank’s business and earnings, besides adding to costs. Therefore bank aims at effective management of operational risk through control optimisation and well established systems, methods and governance framework.D FINANCIAL RISK MANAGEMENT (continued)

D4 OPERATIONAL RISK (continued)

The primary responsibility for development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall bank standards in the following areas for management of operational risk:

Clear reporting lines

Proper delegation of powers

Appropriate segregation of duties and authorisation of transactions through a maker checker system and authorisation matrix

Ownership, reconciliation and monitoring of accounts

Documentation of controls and processes

Compliance with regulatory and other legal requirements

Periodic assessment of the operational risks faced and evaluating the adequacy of controls and procedures to address the risks identified

Reporting of Operational Losses and incidents triggering operational losses and remedial action

Development of contingency plans

Training, skill upgradation and professional development

Ethical and business standards

Risk mitigation through insurance, wherever desirable



90 91

Compliance with Bank standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the Audit Committee and senior management of the Bank.

D5 CAPITAL MANAGEMENT

D5.1 Regulatory capital

The Bank’s lead regulator, Central Bank of Oman (CBO), sets and monitors capital requirements for the Bank as a whole. In implementing cur-rent capital requirements Central Bank of Oman requires the Bank to maintain a prescribed ratio of total capital to total risk-weighted assets. The Bank calculates capital requirements for market risk and operational risk based upon the model prescribed by Central Bank of Oman as follows:

Sovereign entities – NIL

Banks – Risk weightage based upon ratings by Moody’s.

Retail and Corporate loans – In the absence of credit rating model 100% risk weightage is taken.

Off Balance Sheet items – As per credit conversion factors and risk weightage prescribed by Central Bank of Oman.


D5 CAPITAL MANAGEMENT (continued)

D5.1 Regulatory capital (continued)

The Bank’s regulatory capital is analysed into three tiers:

Tier 1 capital, which includes ordinary share capital, share premium, perpetual bonds (which are classified as innovative Tier 1 securities), retained earnings, translation reserve and minority interests after deductions for goodwill and intangible assets, and other regulatory adjust-ments relating to items that are included in equity but are treated differently for capital adequacy purposes.

Tier 2 capital, which includes qualifying subordinated liabilities, collective impairment allowances and the element of the fair value reserve relating to unrealized gains or equity instruments classified as available-for-sale.

Tier 3 capital, which includes short term subordinated debts which if circumstances demand would be capable of becoming the Bank’s permanent capital.

Various limits are applied to elements of the capital base. The amount of innovative tier 1 securities cannot exceed 15 percent of total tier 1 capital; qualifying tier 2 capital cannot exceed tier 1 capital; and qualifying term subordinated loan capital may not exceed 50 percent of tier 1 capital. There are also restrictions on the amount of collective impairment allowances that may be included as part of tier 2 capital. Other deductions from capital include the carrying amounts of investments in subsidiaries that are not included in the regulatory consolidation, invest-ments in the capital of Banks and certain other regulatory items.

Banking operations are categorized as either trading book or banking book, and risk-weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to assets and off-balance sheet exposures. To compute the capital charge for operational risk the Bank has considered the gross income for seven quarters, being the period since the commencement of operations, due to non-availability of data for previous three years as required under basic indicator approach for computation of capital for operational risk. The Bank’s policy is to maintain a strong capital base as to maintain investor, creditor and market confidence and to sustain future develop-ment of the business. The impact of the level of capital on shareholders’ return is also recognized and the Bank recognizes the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position. The Bank and its individually regulated operations have complied with all externally imposed capital requirements throughout the year. There have been no material changes in the Bank’s management of capital during the year.

The international standard for measuring capital adequacy is the risk asset ratio, which relates capital to balance sheet assets and off balance sheet exposures weighted according to broad categories of risk.


D5 CAPITAL MANAGEMENT (continued)

D5.1 Regulatory capital (continued)The risk asset ratio calculated in accordance with the capital adequacy guidelines of the Bank for International Settlement is as follows:

31 December 2007

31 December 2008

31 December 2008

31 December2007

USD’000 USD’000 RO’000 RO’000

Tier I capital

129,870 259,740 Ordinary share capital 100,000 50,000

4,571 4,496 Legal reserve 1,731 1,760

(6,457) (12,338) Accumulated losses (4,750) (2,486)

- (969) Deferred tax asset (373) -

- (1,283) Fair Value losses (494) -

--------------- --------------- --------------- ---------------

127,984 249,646 Total 96,114 49,274

--------------- --------------- --------------- ---------------

Tier 2 capital

11,436 24,836 Impairment allowance on portfolio basis 9,562 4,403

--------------- --------------- --------------- ---------------

11,436 24,836 Total 9,562 4,403

--------------- --------------- --------------- ---------------

139,420 274,482 Total regulatory capital 105,676 53,677

--------------- --------------- --------------- ---------------

Risk-weighted assets

928,332 1,913,665 Retail Bank, Corporate Bank and market risk 736,761 357,408

40,597 86,343 Operational risk 33,242 15,630

--------------- --------------- --------------- ---------------

968,929 2,000,008 Total risk-weighted assets 770,003 373,038

--------------- --------------- --------------- ---------------

Capital adequacy ratio

14.39% 13.72%Total regulatory capital expressed as a percentage of total risk-weighted assets 13.72% 14.39%

13.21% 12.48%Total tier I capital expressed as a percentage of total risk-weighted assets 12.48% 13.21%

The capital adequacy ratio is calculated in accordance with the Basel II norms as adopted by Central Bank of Oman.

D5.2 Capital allocation The allocation of capital between specific operations and activities is, to a large extent, driven by optimization of the return achieved on the capital allocated. The amount of capital allocated to each operation or activity is based primarily upon the regulatory capital, but in some cases the regulatory requirements do not reflect fully the varying degree of risk associated with different activities. In such cases the capital require-ments may be flexed to reflect differing risk profiles, subject to the overall level of capital to support a particular operation or activity not falling below the minimum required for regulatory purposes.

Although maximization of the return on risk-adjusted capital is the principal basis used in determining how capital is allocated within the Bank to particular operations or activities, it is not the sole basis used for decision making. Account also is taken of synergies with other operations and activities, the availability of management and other resources, and the fit of the activity with the Bank’s longer term strategic objectives.



92 93

D6 SEGMENTAL INFORMATIONSegment information is presented in respect of the Bank’s business segments. The primary segmentation is based on the Bank’s management and internal reporting structure. Interest expense is allocated to business segments on the basis of the Bank’s average cost of funds.

Business segmentsThe Bank comprises the following main business segments:Corporate Banking - Includes loans, deposits and balances with corporate customers. The unit also undertakes funding through borrow-

ings, issues of debt securities, use of derivatives for risk management purposes and on behalf of customers and invest surplus funds in liquid assets such as short-term placements, business corporate and government debt securities. Corporate banking also undertakes non funding activities for its customers.

Retail Banking – Includes loans, deposits and other transactions and balances with retail customers.

Segment information is as follows:

31 December 2008 From 9 April 2007 up to 31 December 2007

Retail Corporate Others Total Retail Corporate Others Total

RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000

Operating income 13,480 4,249 - 17,729 6,924 1,501 - 8,425

Operating expense (10,250) (2,331) - (12,581) (4,627) (934) - (5,561)-------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------

Operating profit 3,230 1,918 - 5,148 2,297 567 - 2,864

Net pre-incorporation expense - - - - - - (683) (683)

Net pre-operating expense - - - - - - (264) (264)

Impairment on investments - (2,388) - (2,388) - - - -

Impairment allowance on portfolio basis (3,519) (1,640) - (5,159) (2,738) (1,665) - (4,403)

Specific Provisions (186) (52) - (238) - - - -======= ======= ======= ======= ======= ======= ======= =======

Segment loss for the year (475) (2,162) - (2,637) (441) (1,098) (947) (2,486)======= ======= ======= ======= ======= ======= ======= =======

Segment assets 329,566 513,345 - 842,911 141,142 279,200 - 420,342

Segment liabilities 180,137 662,774 - 842,911 144,991 275,351 - 420,342======= ======= ======= ======= ======= ======= ======= =======

31 December 2008 From 9 April 2007 up to 31 December 2007

Retail Corporate Others Total Retail Corporate Others Total

USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000

Operating income 35,013 11,036 - 46,049 17,984 3,899 - 21,883

Operating expense (26,623) (6,055) - (32,678) (12,018) (2,426) - (14,444)-------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------

Operating profit 8,390 4,981 - 13,371 5,966 1,473 - 7,439

Net pre-incorporation expense - - - - - - (1,774) (1,774)

Net pre-operating expense - - - - - - (686) (686)

Impairment on investments - (6,203) - (6,203) - - - -

Impairment allowance on portfolio basis (9,140) (4,260) - (13,400) (7,112) (4,325) - (11,437)

Specific provisions (483) (135) - (618) - - - -======= ======= ======= ======= ======= ======= ======= =======

Segment loss for the year (1,233) (5,617) - (6,850) (1,146) (2,852) (2,460) (6,458)======= ======= ======= ======= ======= ======= ======= =======

Segment assets 856,015 1,333,364 - 2,189,379 366,603 725,195 - 1,091,798

Segment liabilities 467,888 1,721,491 - 2,189,379 376,600 715,198 - 1,091,798======= ======= ======= ======= ======= ======= ======= =======

We set higher and higher standards for everything we do for the customer; and thenwe do everything possibleto live up to them


Bank Sohar Contact Details, Branch Network, and ATM Locations

MBD Branch Haider Abdullah P.O. Box 44, PC 114, Hai Al Mina Tel : +968 24730244 / 24730000 Fax : +968 24730275 E-mail : [email protected]

Sohar Branch Rashid Al Maskry P.O. Box 831, PC 311 Tel : +968 26842709 / 26846957 Fax : +968 26842538 E-mail : [email protected]

Nizwa Branch Aziz Al Amri P.O. Box 227, PC 611 Tel : +968 25412675 / 25412676 Fax : +968 25412677 E-mail : [email protected]

ONSITE:MBD Branch

Sohar Branch

Nizwa Branch

Qurum Branch

Seeb Branch

Ibra Branch

BRANCHES

ATM’sOFFSITE:

Azaibah : Safeer Hypermarket

Shell Petrol Filling Station

MOD : Muaskar Al Murtafaa

South Al Hail : Shell Filling Station

Maabela : Souq Al Maha Filling Station

South Maabela, Al Maha Filling Station

Shell Filling Station

Qurum Branch Moza Al Mamari P.O. Box 1876, PC 114, Hai Al Mina Tel : +968 2456 0260 / 24565727 Fax : +968 24563292 E-mail : [email protected]

Seeb Branch Fahad Al Hooti P.O. Box 869, PC 111, Wilayat Seeb Tel : +968 2442 771 / 24422774 Fax : +968 2442 2050 E-mail : [email protected]

Ibra Branch Amour Al Habsi P.O. Box 505, PC 400, Tel : +968 25572526 Fax : +968 25572234 E-mail : amour.alhabsi @banksohar.net

Salalah Branch Amur Al Amri P.O. Box 1577, PC 211, Tel : +968 23295239 / 23293269 Fax : +968 23297932 E-mail : [email protected]

Sur Branch Yahya Al Mashaikhi P.O. Box 269, PC 411, Tel : +968 25545181 / 25545199 Fax : +968 25545084 E-mail : [email protected]

Athaiba Branch Abdullah Al Harthy P.O. Box 4019, PC 112, Tel : +968 24491226 / 24499812 / 24499815 Fax : +968 24494649 E-mail : [email protected]

Shinas Branch Abduljalil Al-Ajmi P.O. Box 458, PC 324, Tel : +968 26748282 Fax : +968 26748520 E-mail : [email protected]

Barka Branch Adnan Al Balushi P.O. Box 528, PC 320, Tel : +968 26883583 / 26883584 Fax : +968 26883592 E-mail : [email protected]

Azaiba Branch

Salalah Branch

Sur Branch

Shinas Branch

Barka Branch

North Al Hail : Near Muscat Pharmacy

Al Ghubra

Sohar Al Waqaibah : Al Maha Petrol Filling Station

Ibra : Sifalat

Salalah : 23rd of July Street

HEAD OFFICE ADDRESS

Head office address:Business Location: CBD AreaPO Box:44 Hai al MinaPC: 114, Sultanate of OmanTelephone : +968 24730000Fax : +968 24730010E-mail : [email protected] : www.banksohar.net

SENIOR MANAGEMENT

Dr. Mohammed bin Abdulaziz KalmoorChief Executive OfficerTel : +968 24730011Fax : +968 24730010E-mail : [email protected]

H. V. Sheshadri Senior DGM - Risk Management Tel : +968 24730002 Fax : +968 24730010 E-mail : [email protected]

R NarasimhanDGM - Wholesale BankingTel : +968 24730005Fax : +968 24730033E-mail : [email protected]

Khalfan bin Rashid Al Tal’eyDGM - Retail BankingTel : +968 24730003Fax : +968 24730010E-mail : [email protected]

Munira bint Abdulnabi MackiDGM - Human Resources & Corporate SupportTel : +968 24730300Fax : +968 24761888E-mai : [email protected]

Peter ByrneDGM & Head of Internal Audit.Tel : +968 24730006Fax : +968 24730033E-mail : [email protected]

Mangala GamageDGM - Chief Financial OfficerTel : +968 24761790Fax : +968 24730308E-mail : [email protected]

Shantanu Ghosh DGM - Operations & Technology and Electronic Channels Tel : +968 24730004Fax : +968 24730010E-mail : [email protected]

WHOLESALE BANKING

Mervyn G. FernandoAGM - Large Corporate BankingTel : +968 24662111Fax : +968 24662110E-mail : [email protected]

Jeanan SultanAGM - Corporate Banking- Govt. & Quasi Govt.Tel : +968 24662140Fax : +968 24662110E-mail : [email protected]

Mohammed Onn DohadwalaAGM - Financial Institutional Group &Investments Tel : +968 24662150Fax : +968 24662156E-mail : [email protected]

Saeed bin Ali Al HinaiAGM & Head TreasuryTel : +968 24730239Fax : +968 24730280E-mail : [email protected]

Kamal bin Hassan Al MurazzaHead - Small & Medium EnterprisesTel : +968 24527114Fax : +968 24527116E-mail : [email protected]

Mustafa bin Ali MukhtarAGM - Trade Finance UnitTel : +968 24730246Fax : +968 24730361E-mail : [email protected]

RETAIL BANKING

M DineshHead - Consumer Lending & AGM- Product DevelopmentTel : +968 24730250Fax : +968 24730259E-mail : [email protected]

Salim bin Khamis Al MiskaryAGM - BranchesTel : +968 24730333Fax : +968 24730010Email : [email protected]

Mazin bin Mahmood Al RaisiHead - Marketing & PublicityTel : + 968 24730222Fax : +968 24730124E-mail : [email protected]

Talal bin Ali Al ZadjaliHead - Privilege BankingTel : +968 24662020Fax : +968 246620221E-mail : [email protected]

Vlada ShmatchenkoHead - Card Products & Business Development Tel : +968 24730290Fax : +968 24730010E-mail : vlada.s @banksohar.net

Abdullah bin Mohammed Al GhafriSenior Manager - Direct SalesTel : +968 95045258Fax : +968 24730259E-mail : [email protected]

Abdul Rasheed Abdul Razak Senior Chief Manager - Consumer LendingTel : +968 24730248Fax : +968 24730259E-mail : [email protected]

our vision - sohar international · 2019. 6. 11. · our management, our staff, our customers, our...

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